Congress to Consider State Bankruptcy

(Reuters) - Legislation that would allow U.S. states to file for bankruptcy will likely be introduced in Congress within the next month, Newt Gingrich, the former speaker of the House of Representatives and a powerful Republican party figure, told Reuters on Friday.

Is Newt Gingrich nuts or right on the money? Should states like California, New York, Illinois, and others be allowed to belly up to the bankruptcy court with tens of billions of debt?

Will people that retired from or work for these states all lose their pensions because the state never fully funded them? Will this or will it not open the flood gates of litigation for other states to walk away from bigger than life debt like the Big Dig in Massachusetts? What about the potential loss of reliable state public works contractors for future projects? And what about the union agreements of existing state workers, do those all get trashed?

One thing that is certain, none of the states that could benefit from this kind of legislation are interested in it because the downward side of the bankruptcy would bankrupt the political leaders that choose to use it. If you honestly think about it from a politician’s point of view, democrat or republican, would you want your name and political party synonymous with “State of (insert state name here) Bankrupt” as a Governor? Would your state political party leaders even let you as their Governor consider filing bankruptcy on behalf of your state? No, and HELL NO!

The way that this “State’s Bankruptcy” legislation will go down in the congress is that the Republican’s will pass it in the house and the Democrat’s will kill it in the senate. Then they will each politically spin it so they look like the ones defending the American peoples pocketbook. In the meantime the states with a serious accounting problem will still be in the toilet. Why don’t they just forget about all that wasted time debating it and figure out a realistic way to get the troubled states back on their feet? I’ve said it right here once before that politicians don’t really care about taking care of the actual problem, they just care about blaming the other side for it.

Last thought, Newt, you have been out of public service since 1999, just shut the hell up.

Papamoka

California State Bankruptcy Looms

UPDATED POST 1/23/11: Congress to Consider State Bankruptcy

The nations largest economy state is about to go bust. California is facing a $41 Billion dollar deficit and the cuts already made are not enough to balance the states budget. Credit markets are chucking the state the bird and are rating their bonds as pretty much junk which adds to the dilemma. This leads me to ask or point out the obvious question if California will be the first state to file bankruptcy during this mega recession?

Over at the New York Times they have this to say on the future of California and its state governments survival…

Since the fall, when lawmakers began trying to attack the gaps in the $143 billion budget that their earlier plan had not addressed, the state has fallen into deeper financial straits, with more bad news coming daily from Sacramento. The state, nearly out of cash, has laid off scores of workers and put hundreds more on unpaid furloughs. It has stopped paying counties and issuing income tax refunds and halted thousands of infrastructure projects.

After negotiating nonstop from Saturday afternoon until late Sunday night on a series of budget bills that would have closed a projected $41 billion deficit, state lawmakers failed to get enough votes to close the deal and adjourned. They returned to the capital late Monday morning only to adjourn until the afternoon, though it was far from clear whether they would be able to reach a deal.

California has also lost access to much of the credit markets, nearly unheard of among state municipal bond issuers. Recently, Standard & Poor’s downgraded the state’s bond rating to the lowest in the nation.

**SNIPPET**

And yet dirty Republican politics moves from Washington DC to Sacramento to push the envelop just beyond the breaking point to put the fix in when it comes to elections. The piece continues…

Democrats, who had already given into Republicans’ long-held dreams of large tax cuts for small businesses and for some of the entertainment industry and a proposed $10,000 tax break for first-time home buyers, balked at Mr. Maldonado’s request that the legislature tuck a bill into the package that would allow voters to cross party lines in primary elections.

Mr. Maldonado, who is also seeking a constitutional amendment to prevent lawmakers from getting paid if budgets are late, defended his request that the open primary bill be included in the budget package. - New York Times

Is it just me or does it seem like Republicans are forcing our state and federal governments into losing situations financially simply so they can point the finger of blame in the next election? And do they think that all Americans have a ten day, three month or one year memory recollection? Will the Republican Party lead the nation to bankruptcy state by state simply because they can sabotage common sense legislative action by voting no or stuffing unacceptable poison pills into the same bills that would have saved their own state or federal government? I’d have to answer yes they will and yes they are.

Governor Schwarzenegger is going to be forced to shut down all but emergency services when the money runs out from the Sacramento treasury simply because he will not have a choice. All state services will be closed from one end of the budget process to the other. Local communities will be forced to step in where the state can no longer pay to operate services. Thank you Mr. Maldonado for shutting your state and all of its services down you selfish monster.

Now that is good Republican government, stuff it down somebody else throat aka bank account to pay for. Then again, isn’t that what the federal government has been doing to the states for the last eight years under George Bush?

I’m hoping that wiser minds prevail and sort out the details to stop California from going into bankruptcy but we shall see. Republican’s are on the war path of destruction simply because they think they can blame the political party in charge when the proverbial excrement hit’s the fan come the next election.

Papamoka

State Workers to Feel the Economic Pain

Downsizing is all across the news reports, and all over America is talk about all of the fifty states having a hard time meeting their budget obligations. Governors are cutting corners where they can and still more cuts are needed. It’s the same scenario in privately run businesses as well. If the customer is cutting back and not visiting your business with paid orders then the only thing to do is cut back where you can save the most money the quickest way possible. Survival of the business aka state government service is the end objective.

That means layoffs and if the private sector is suffering that inevitable choice then the public works, government service, and government agencies must do the same. If taxes are not being paid into the state governments to keep up with the payroll of that state then they can’t pay out for services expected by its citizens. But is layoffs the only choice Governors have? I personally do not think so. Over at MSNBC courtesy of the Associated Press they have this thought on it…

Governors seek sacrifices from public workers
Money-saving measures include pay and benefit cuts, truncated workweeks

COLUMBUS, Ohio - Governors across the nation are seeking significant concessions from public employee unions in hopes of helping to balance their teetering budgets during the economic downturn.

From Maryland to California, Ohio to Hawaii, governors have asked or ordered state workers to accept furloughs, salary reductions, truncated workweeks or benefit cuts. They say the concessions are a better alternative to further job losses in the face of record-breaking unemployment.

Unions argue their members shouldn't be singled out and are even more vital in hard times — securing neighborhoods and prisons, educating children and providing social services to growing numbers of citizens. - MSNBC-AP

I’m personally a huge union workers supporter but I am also a realist that sees that the states can not be paying benefits and providing services when the money is just not their to do so. With the credit markets tightened to the point of a stranglehold on businesses, it isn’t like each state can go to the credit markets and float bonds till things pick up in the economy. Wall Street and the markets just do not work that way. States can also not rely on the federal government to support all of them with a total bailout till the point of if and when the economy starts to recover. That thought process is the way to total economic destruction far beyond the Great Depression of the early 1930’s.

Governors in all states need to look to the budgets they currently have and cut wherever is required. They must also negotiate with not just the unions that are the employees of the state but the suppliers of all items including benefits to the state first and foremost. If they have to combine bargaining power with adjacent states to gain far better rates, then so be it. It’s called demanding better terms from your suppliers. Be it health insurance, paper products, light bulbs, paper clips, or even new equipment for law enforcement. If you have ever known someone that has worked in the private sector in purchasing, its called getting the best terms and rates for your company and it is called competition. If one supplier isn’t willing to negotiate, you move on to another, and another till you get the price you need to maintain your business. Some people call it beating up your vendor but I like to call it the art of negotiation. Each participant knows the value of the deal and each person is looking to find the perfect price where both parties are happy. The purchaser is happy and the seller is happy. AKA, its business 101!

Each state in the union pays millions if not billions for gasoline and diesel per year for the fleets of vehicles they own, millions if not billions to heat or cool state run offices all across each state. It doesn’t take a rocket scientist to figure out that the energy suppliers need your base business to survive. Demand competitition from your current suppliers and then seek out alternative sources for the same products. Wind power, solar power, bio-fuels, and the list goes on.

There are still many investors in the market looking for state bonds that make sense. If a bond was floated from Massachusetts or any state just for the sake of paying salaries and maintaining a payroll the state itself could not maintain it would have little interest in the markets on Wall Street. If the same state came out with a bond based on putting 100,000 or 250,000 solar panels on state run offices that would save the state millions of dollars per month once installed that would never have to be paid to an energy utility for the next thirty plus years it would draw huge attention, and not just here in America on Wall Street, but around the world. The beauty of the “Purchasing Negotiation” is that you could demand that each unit purchased will not be paid for till it is installed and generating power. That should work out to a thirty to sixty day payment deal for the manufacturer if they take the initiative to hire qualified people and install each and every single unit on the state buildings. Something that they could and should take the initiative to outsource to mulitple companies across every single state. More jobs, more state tax income.

Those savings even with repayment of the bond could equal thousands of state jobs and services that are needed elsewhere. It is the initial investment that is needed and we have several Solar Power Panel manufacturers right here in the United States of America that could and would benefit with increasing the workforce to meet the demand of high tech jobs at good wages. Schott Solar of California has a manufacturing facility in Billerica, Ma and Evergreen Solar of Marlborough, MA has a facility in the former Fort Devens military base to name just two.

President Obama is on the right track with his renewable energy initiatives in the current bailout package and the states need to look at the thought processes behind renewable energy and apply the thought process in public buildings all over the nation. If solar panels on the roof are paying 10% to 30% of the energy needs then how many jobs does that save in the public sector? Same thought process goes to private businesses as well. Back in the mid 1980’s I worked in a wire and cable manufacturing facility, the building was about 300,000 square feet full of equipment that was all powered by the local electric utility. The monthly bill at the time for the power was over $30,000 dollars. Then you had to figure the cost to heat such a large facility by gas per month and the bill was even larger than the electric in the winter months.

Even with the current drop of the cost of oil, the largest bill for any business other than raw materials is the energy cost. Cut that cost down by going with multiple renewable energy systems and the probability that you never pay an electric bill or gas bill ever again is within reach! How many jobs is that bill paid to the electric or gas, oil, propane company worth every month to any business or a greater point, how much does that allow you to pass those savings onto your customer and get the business you could never touch before? Our economy is built on competition and innovation, we need to look at the innovations not just in the private sector but in each of our state governments.

Each of our states need to be creative budgetary wise and think long term when it comes to their energy needs. Payroll is not the biggest cost they have but it is the easiest to cut. Demand more long term economic thought process from your state Governor and Legislators!

Papamoka