Workforce Levels-Private & Gov.

[zoog]

Re: Workforce Levels-Private & Gov.

Jolly fine post, EJ. Thank-you. That post goes a long way in providing the "Forecast" that someone recently lamented that they could not find in your 2010 Review and 2011 Forecast thread...

Yeah that was me (in Part II). Hey it said forecast, I expected a forecast. At least now I kinda got what I wanted.

...When municipalities start cutting every other teacher, Fireman, policeman, I think you're going to see torches and pitchforks showing up at city council meetings...

We sometimes wonder aloud here at iTulip what might incite the sheeple to action. This seems like the kind of scenario that might actually get the ball rolling. If word ever gets out that the city is laying off teachers and emergency workers, closing parks, etc. so they can pay back "the bankers", I think people are going to be pretty upset and demand that public services take precedent over public debts. Nevermind that something like 80% of municipal bond-holders are mutual funds and individuals, ironically probably including some residents of that city. For a flustered mayor or city council, who are they going to appease, the far away and scattered bond-holders who at most might call in threats from their lawyers, or the rioting crowd outside city hall?

...Rhode Island is a state that doesn't allow for municipalities to declare Chapter 9 bankruptcy. The solution then is receivership with a state-appointed receiver. The receiver is now recommending dissolution of the city. The recommendation is to have neighboring Pawtucket annex it...

Great, straining the resources of the neighboring city. How many towns can take over services for other towns before they're all in trouble?

[goodrich4bk]

Re: Workforce Levels-Private & Gov.

When municipalities start cutting every other teacher, Fireman, policeman, I think you're going to see torches and pitchforks showing up at city council meetings.

Assume, as in California, that this year's budget requires more borrowing to pay those teachers, firemen and police officers. If California defaults on its existing bonds, new issues will require even higher interest rates (assuming there is any bid at all for the bonds). This is how state treasurers justify paying existing bondholders.

Let me put some numbers on this concept to explain why I think EJ is correct. Assume the state needs a 20% total budget adjustment to balance in 2011. It can only get there with three tools: cuts, taxes and debt. Let's say Jerry Brown goes to the public unions and requires a 10% cut in either salaries or headcount, he puts a ballot initiative for a 5% tax increase and he proposes to borrow another 5%. The public unions, spurred by your angry parents scenario, respond by demanding a bond default. He tells them that if the state defaults, then the 5% of new borrowing disappears and the total deficit spikes to 25% because the existing bondholders are now demanding default rates of interest. Now that 25% of total budget adjustment must be split between cuts and taxes because more debt is no longer an option. The teachers tell Jerry to go to the voters for a 20% tax increase with a 5% pay cut. He does and the vote fails. Now the states borrowing costs are increasing even without a default because bondholders are fearing an eventual default. The teachers are now looking at bearing a 25% paycut.

Remember, if there is not enough money to pay all salaries and bondholers in full, the California treasurer MUST pay the bondholders first. He or she has no discretion to do otherwise under state law. If the treasurer refuses, the bondholders will sue and get a judgment for contempt.

Of course, the legislature can always change the law and reverse priorities. But that is exactly what EJ is saying: that it will require a significant political change to lead to default. It will not happen overnight and probably not for several more years.

[don]

Re: Workforce Levels-Private & Gov.

Fee will be layered upon fee. Fees for emergency services. Fees for snow clearing. Fees fro street cleaning. Permitting fees for heretofore unregulated activities, from home gardens to swimming pools. The most politically weak and vulnerable will bear the brunt of the new fees and taxes and spending cuts needed to maintain a flow of interest and principle payments on the bonds, but the flow will be maintained at all costs because the political power is in the hands of the bond holders.

'Crash taxes' are growing in popularity among cash-strapped California cities

Drivers who cause accidents in at least 50 cities can be billed for the police and firefighters who show up. Critics are upset that cities are charging for what used to be a basic service.

December 30, 2010|By Marc Lifsher, Los Angeles Times

Reporting from Sacramento — One more good reason to drive safely in California: If you cause an accident, you may be on the hook to pay the police and firefighters who show up to help.

At least 50 cities in the state have adopted so-called crash-tax laws allowing local governments to seek reimbursement from insurance companies for the costs of sending public emergency crews to accident scenes. The fees can amount to hundreds or even thousands of dollars. If insurers don't pay, cities can hire collection agents to seek payment from the motorists involved.


Billing crash victims might seem heartless. But public officials said that budget woes are compelling them to find new ways to raise revenue. Over the last six years, Costa Mesa, Fullerton, Garden Grove, Santa Ana, Hemet and other cities have started charging fees for accident-related public services.

Sacramento, with nearly half a million residents, soon could be the largest city in California to do so. The City Council has scheduled a vote next month to establish what it's calling a "fire cost recovery charge." The fee would reimburse the city for a variety of emergency-related chores, including cleaning up hazardous fluids, putting out vehicle fires and responding to gas line explosions and downed power poles. Proposed fees would range from $432 for a "scene stabilization" to $2,275 for a helicopter evacuation. The measure is expected to raise as much as $500,000 a year, city spokeswoman Linda Tucker said.

"We'd like to be able to recover some costs … from the at-fault party," she said.
Critics, however, are incensed that communities are now charging extra for what once were considered core services.

"To me, it's an outrage. We're already paying these people — the police department, the fire department, the emergency vehicle drivers — handsome salaries and benefits," said Lew Uhler, president of the National Tax Limitation Committee. "Either we stop this kind of nonsense or we should quit paying taxes for these kind of services."

The practice isn't limited to cities in struggling California. It's gaining momentum nationwide as cash-strapped communities seek a way to offset budget cuts.

This month, New York Mayor Michael R. Bloomberg proposed charging drivers there as much as $490 when firefighters respond to an accident or a vehicle fire, beginning July 1. A public hearing is set for January.

Public officials defend the fees as legal and justified. Communities have long required auto insurance companies to pay for ambulance services provided to their policyholders by local fire departments. Charging for road cleanup and other accident-related expenses is simply a logical extension of that precedent, public officials contend.

Costa Mesa in July 2009 started sending bills for what it called "motor vehicle accident cost recovery" fees to the insurers of motorists found at fault for crashes. The fees are based on the number and types of personnel and equipment dispatched to an accident scene as well as the cost of materials used in the cleanup. So far, Costa Mesa has received $91,000 after paying commissions to an outside contractor hired to file the claims. The city still is trying to collect $186,000 in outstanding claims.

Local taxpayers shouldn't have to pay for accidents they had no part in creating, said Costa Mesa Fire Battalion Chief Bill Kershaw.

"Someone has to pay for the cleanup," he said. "We're subsidizing the insurance companies" if cities don't collect from the responsible parties.

Insurers counter that public safety is a vital government function that should be funded through general taxation. Crash taxes, they said, could create financial hardships for motorists who have already suffered the expense and trauma of being in a vehicle accident. It will also lead to higher auto insurance rates, said Sam Sorich, president of the Assn. of California Insurance Companies.

"It's not a question that what [the cities] are doing is illegal; rather, is what they are doing good public policy?" Sorich said. "We have to change our rates to pay for the tax.... It's not good for consumers."

Others worry that crash taxes could hurt tourism, an important industry in California. That's because a number of cities are charging the fee only to nonresidents. Concerned about a potential public relations fallout that could harm its lucrative visitor trade, the Huntington Beach City Council in November repealed an auto crash-tax ordinance it approved on a 6-1 vote only three months earlier.

At least one legislator is looking to put an end to the fees for good.

State Sen. Tony Strickland (R-Moorpark) introduced legislation in mid-December to outlaw crash taxes. Strickland's measure, SB 49, will have its first legislative hearing late next month. A similar bill failed last year.

"Hardworking Californians already are struggling to make ends meet and simply cannot afford yet another tax," Strickland said.

Strickland's most powerful ally probably will be the insurance industry, which operates one of the most influential lobbying machines at the state Capitol. Insurers gave Strickland more than $200,000 in political contributions in the last four years, according to MAPlight.org, a nonpartisan group that promotes government and political transparency. Farmers Insurance Group, Mercury General Corp. and the Personal Insurance Federation of California were among Strickland's top 10 contributors, MAPlight reported.

Insurance industry officials said they never asked Strickland to help them ban crash taxes, although they back his efforts.

"He hasn't talked to us. He did this on his own," said Sorich, the trade group president. "We support the bill because things are getting a little ridiculous out there. It's become a crazy quilt of these things all over the place. The state has to come in and create some order here."

At least 10 states, including Florida, Georgia and Pennsylvania, have already banned the collection of accident-response fees, according to A.M. Best Co., an independent insurance information service based in Oldwick, N.J.

But California cities and the companies they hire to collect accident fees are gearing up for a fight. The Strickland bill would prohibit local governments from collecting for all types of emergency services, including fire, police and medical, they said.

Such a ban "could devastate city services and economic health," the League of California Cities said in a letter to lawmakers.

Insurance companies are trying to harness populist antitax sentiment, typified by the "tea party" movement, to protect their own profits, said Rick Benner, chief financial officer of Fire Recovery USA.

The company, based in Roseville near Sacramento, bills for fire and emergency services for more than 60 California municipalities, he said. Although he declined to provide exact numbers, Benner said Fire Recovery collects 60% to 90% of its reimbursement claims.

"The insurance companies have skated free on this issue for a number of years," Benner said. "The cities have done this work on their own. There were claims they could have filed and they didn't file them.

"Now it's come to the point that cities and counties can't afford to fund their fire departments. They're relooking at their business models."

marc.lifsher@latimes.com

[bill]

Re: Workforce Levels-Private & Gov.

The municipal bond analysis we working on convinces us to maintain our long standing position on municipal bonds: the average 30 year 0.03% default rate on AAA municipal bonds will hold. Defaults will only occur in one-off, extreme cases.

iTulip's FIRE Economy Debt Repayment Rule #3 applies: bonds will be paid off even if every municipal service has to be cut, every other teacher, policeman, and firefighter laid off, the roads fill with potholes, and bridges have to be closed for safety reasons. You can already see it. Look around you. Fee will be layered upon fee. Fees for emergency services. Fees for snow clearing. Fees fro street cleaning. Permitting fees for heretofore unregulated activities, from home gardens to swimming pools. The most politically weak and vulnerable will bear the brunt of the new fees and taxes and spending cuts needed to maintain a flow of interest and principle payments on the bonds, but the flow will be maintained at all costs because the political power is in the hands of the bond holders.

[/FONT]

As the tension builds. Will state bankruptcy be approved? Will the FED bailout states?

http://www.nytimes.com/2011/01/21/bu...er=rss&emc=rss

A Path Is Sought for States to Escape Their Debt Burdens

By MARY WILLIAMS WALSH

Published: January 20, 2011

Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.

http://thehill.com/blogs/congress-bl...cy-for-states-

Bankruptcy works: Why Congress should consider bankruptcy for states


By Jonathan S. Henes - 01/19/11 10:42 AM ET
Accordingly, Congress should provide insolvent states with the ability to file for bankruptcy. Of course, it may be politically dangerous for a congress person to say the word “bankruptcy” in the context of the states. The word “bankruptcy” conjures up harrowing images for the public. The public may envision services shutting down and chaos on the streets if states were able to file for bankruptcy. Public unions and public employees will view state bankruptcy legislation as an attack on their retirement and pension payments. Consequently, the public needs to be educated that not only does bankruptcy work, it works well. It does not need to result in services shutting down; in fact, it may be what allows services to continue. And, while unions may need to compromise on their pension obligations, it is almost always true that a negotiated result is better than a court imposed result. Importantly, the specter of bankruptcy may allow states and their unions to resolve issues without the states ever having to file for bankruptcy, because the states and the unions will be incentivized to reach an out of court solution rather than risking a bankruptcy court-imposed resolution.
Experience dictates that a bankruptcy alternative for states may be critical and necessary to enable states to work out their fiscal issues in a comprehensive way and position states for long-term stability. Without the ability to file for bankruptcy, states simply do not have the tools at their disposal to actually fix their problems. Instead, states will be forced to rely on short-term fixes for long-term problems. Of course, when the short term fixes run out - and that may occur sooner than anticipated - a state will be out of options. Its only real option will be to ask the federal government for a bail out and that is an option that will risk our entire economic foundation. Instead, Congress should give the states a chance and provide them with the option to file for bankruptcy, an option that will enable the states to design and implement a comprehensive plan for long-term fiscal health.

[Rajiv]

Re: Workforce Levels-Private & Gov.

Also from The Real Job Killers? State Budget Crises

By June Carbone

I sit on the Faculty Senate of a large Midwestern university. Every meeting for the past year has been consumed with planning for this year's budget crisis. For those insulated from Washington politics, the timing is curious. The economy is improving. State revenues are increasing. Yet this year will be the worst in over a decade for cuts to higher education, school teachers in the suburbs, police in crime-ridden cities, and bridge and infrastructure repair everywhere. Virtually every state will be affected. The cumulative impact will worsen unemployment and may be enough to trigger the feared double dip recession, touching off a new round of economic misery.

In this context, Congressional debate of the misnamed "Repealing the Job Killing Health Care Act" is a tragic distraction from the immediate source of job losses -- the rejection of the economic lessons that have kept the economy on track since the Great Depression. As Paul Krugman explained in his critique of the euro in this week's New York Times Magazine, national fiscal policy and state spending are fundamentally different, whether in Europe or the U.S. Spending at the national level includes automatic correctives. Run federal deficits too high for too long, the dollar falls, imports become more expensive and the demand for American goods increases.

States, however, cannot print money and they are rightly subject to balanced budget provisions that require that they slash expenses when revenues fall. Economists have accordingly maintained since the New Deal that federal spending should be counter-cyclical -- a recession is the time to spend money to create jobs. Policy makers since Richard Nixon have further argued that much of the counter-cyclical spending should go to the states; they are closer to people's needs and more directly hurt by falling revenues. So if the concern is jobs, counter-cyclical federal spending implemented through a Republican idea -- revenue sharing -- should be the new Congress' first priority. It would forestall the job slashing taking place in statehouses throughout the country and do more to reduce unemployment than any proposal currently on the table.

Yet no one is talking about revenue sharing. President Obama proposed some aid to the states as part of his original stimulus package, but Republicans pared those measures back in favor of tax cuts that contributed less to job preservation. When the Republicans insisted on running up the deficit through tax cuts for the wealthy, the president responded with more tax cuts for everyone else -- but not the spending most directly tied to jobs. The bailout of financial fat cats lasted long enough to bring back high corporate profits and rising stock market prices. Yet assistance to the states is being cut off at a time likely to forestall economic recovery.

The results reject the conventional economic wisdom of the last half century and inflict needless misery on the teachers, policemen, and construction workers who form the backbone of the country. While China undertakes massive public investment in schools, universities, technology, roads and a 21st century infrastructure, we are dismantling the institutions essential to our ability to compete. The token fight to repeal health care is a distraction from the job demolition derby underway in the states as a direct result of federal cutbacks. Yet the connection between ideologically driven federal policy and state layoffs does not even seem to merit notice in the scores of stories about layoffs, tuition increases and reduced crime protection. It is time to focus attention on the real job killers and hold them accountable.

June Carbone is the Edward A. Smith/Missouri Chair of Law, the Constitution and Society at the University of Missouri - Kansas City.

[dcarrigg]

Re: Workforce Levels-Private & Gov.

Also from The Real Job Killers? State Budget Crises

Rajiv,

Congress ordered a study on General Revenue Sharing back in 2009. The report is here.

It was indeed a Nixonian idea. It was at one point conservative. Giving federal funds back to states and municipalities was certainly a conservative idea. States' rights. Then came Reagan with Laffer Curves and "starve the beast."

[bill]

Re: Workforce Levels-Private & Gov.

Soros gives his comments from Davos.
http://blogs.wsj.com/deals/2011/01/2...e-muni-market/

January 26, 2011, 4:07 PM
Uh oh. George Soros is comparing the shivers about U.S. state and local governments to sovereign-debt fears in Europe.
The billionaire investor told CNBC today that he’s worried about the budget pressures faced by state and municipal governments. “This is going to be the drama of the next year,” he said from Davos, home of the World Economic Forum.
He said states are likely to meet resistance raising taxes and will likely have to cut services or pressure public employees to cut their benefits. Dealing with state and municipal liabilities is “going to be a lot of pain and conflict,” he said.
There are going to be “some pretty tough conditions,” he said, comparing it to the Euro-zone crisis, which also stemmed from “states (being) too heavily indebted,” Soros said.
Add Soros to the furious investor debate about the health of the state and municipal debt. On one side are prognosticators such as Meredith Whitney, who has predicted unprecedented defaults in the typically staid, $2.9 trillion municipal bond market. Other analysts are more sanguine, and say while state and local governments are stressed, most will be able to weather the storm. Investors are voting with their wallets, pulling billions of dollars out of muni-bond funds.
Also, George: Best. Hat. Ever.

VIDEOS

[bill]

Re: Workforce Levels-Private & Gov.

Soros video

http://www.cnbc.com/id/15840232?video=1767767298&play=1

[bill]

Re: Workforce Levels-Private & Gov.

Soros from Davos on Bloomberg
He says a couple of years commodties hit high.
Talks about states and how the drama will unfold.

http://www.bloomberg.com/video/66216200/