State Budgets: Day of Reckoning 60 minutes

[midwesterner (banned)]

State Budgets: Day of Reckoning 60 minutes
www.cbsnews.com/video/watch/?id=7166293n
60 minutes

(CBS) By now, just about everyone in the country is aware of the federal deficit problem, but you should know that there is another financial crisis looming involving state and local governments.

It has gotten much less attention because each state has a slightly different story. But in the two years, since the "great recession" wrecked their economies and shriveled their income, the states have collectively spent nearly a half a trillion dollars more than they collected in taxes. There is also a trillion dollar hole iln their public pension funds.

The states have been getting by on billions of dollars in federal stimulus funds, but the day of reckoning is at hand. The debt crisis is already making Wall Street nervous, and some believe that it could derail the recovery, cost a million public employees their jobs and require another big bailout package that no one in Washington wants to talk about.

"The most alarming thing about the state issue is the level of complacency," Meredith Whitney, one of the most respected financial analysts on Wall Street and one of the most influential women in American business, told correspondent Steve Kroft

Whitney made her reputation by warning that the big banks were in big trouble long before the 2008 collapse. Now, she's warning about a financial meltdown in state and local governments.

"It has tentacles as wide as anything I've seen. I think next to housing this is the single most important issue in the United States, and certainly the largest threat to the U.S. economy," she told Kroft.

Asked why people aren't paying attention, Whitney said, "'Cause they don't pay attention until they have to."

Whitney says it's time to start.

"Okay. Let's talk about the pension obligations. Forty-six billion unfunded liability for pensions? Sixty-six billion unfunded for healthcare liability?" Kroft asked.

"Yes, Sir," Christie said.

"That's a lot of money," Kroft remarked. "That's a lot of money, even for the federal government."

"That's a lot of money," the governor agreed.

When Kroft pointed out that there are people who think it's worse, Christie said, "Yeah, I think that's an optimistic view. I think that's an optimistic view. Listen, at this point, if it's worse, what's the difference? I mean, it's bad enough as it is, so what's the difference? I mean now, we're talkin' about money that none of us can really get our arms around."

"This is unsustainable, right?" Kroft asked.

"Totally unsustainable. We have a benefit problem," Christie said. "It's not an income problem from the state. It's a benefit problem. And so we gotta change those benefits."

Asked what the reaction to that has been, Christie said, "Well, it depends on where you sit. I mean, I think the general public thinks, 'I can't believe anybody gets a pension anymore. I've got a 401(k). It got killed in the stock market. I don't know what I'm gonna do for my retirement. I can't believe people get a pension anymore.' So I think amongst the broad, general public, they've said, 'Amen.' And I think among the public sector unions, they are yellin' and screamin'."

"There's not a doubt in my mind that you will see a spate of municipal bond defaults," Whitney predicted.

Asked how many is a "spate," Whitney said, "You could see 50 sizeable defaults. Fifty to 100 sizeable defaults. More. This will amount to hundreds of billions of dollars' worth of defaults."

Municipal bonds have long been considered to be among the safest investments, bought by small investors saving for retirement, and held in huge numbers by big banks. Even a few defaults could affect the entire market. Right now the big bond rating agencies like Standard & Poor's and Moody's, who got everything wrong in the housing collapse, say there's no cause for concern, but Meredith Whitney doesn't believe it.

"When individual investors look to people that are supposed to know better, they're patted on the head and told, 'It's not something you need to worry about.' It'll be something to worry about within the next 12 months," she said.

No one is talking about it now, but the big test will come this spring. That's when $160 billion in federal stimulus money, that has helped states and local governments limp through the great recession, will run out.

The states are going to need some more cash and will almost certainly ask for another bailout. Only this time there are no guarantees that Washington will ride to the rescue.

[neohguy]

"The most alarming thing about the state issue is the level of complacency," Meredith Whitney, one of the most respected financial analysts on Wall Street and one of the most influential women in American business, told correspondent Steve Kroft"

The "wealth effect" requires complacency. Denial helps too.

[poorandugly]

Umn as I was saying on the msn board as it pertains to this thread, I give the states em message from Wall Street - tell em to go sleep with the fishes!

Yeah this should be real interesting - bail out Wall Street but the Fed and federal government will not bail out the states.

Good luck with that one.

[reasonfreedom]

Whitney also stated that she was using 2008 data to find out how far in debt the state/local governments were. She said most of the data was prior to the derivatives bubble burst. Just imagine all of the investments that went "KERPLUNK" during that time. The local\state governments are probably expecting returns figured into future fiscal year ends that don't exist anymore.

[robinking]

Just testing all the bells and whistles on this new site.

Attachments:

[robinking]

I like this new site better

[z]

Hi robinkingsxx. Welcome to the camp.

[robinking]

Thanks Z, I like the new digs.

[❤ mollymouser ❤]

California's budget has been a mess for as long as I can remember. And local budgets? Even worse. (sigh)

[itstippy]

This just came out in today's NYT:
www.nytimes.com/2011/01/27/business/27pension.html?src=busln
Moody’s to Factor Pension Gaps in States’ Ratings

This is big. Some States have underfunded their pension plans for years. They've "balanced" their annual budgets by promising future benefits to employees in lieu of pay raises now. Then they neglected to put enough money into the pension fund to pay for the future benefits. They also used unrealistic assumptions about how much the fund would grow on its own (12% annual actual return per year?!?). Those States are screwed. They are forced to publicly acknowledge the shortfalls and suffer increased interest rates on their bond issues.

[scaredshirtless]

Yeah - bail out Wall St but won't bail states or local government.

Makes sense to me!!!

Wonder when this bow up - ummm - blows up.

So many disasters - so little time - they've proven DAMN good jugglers but there's a LOT of balls in the air now that can't be dropped. Quite an act!!

[itstippy]

The strapped States need to securitize their pension funds into Pension Obligation System Backed Securities (POS BS). Sell swaps and derivatives too. Get some financial action going and raise some quick cash. Sell 'em to other State pension funds.

[decoy409]

itstippy, raise some quick cash hey. Your funny! No foul! Just got a kick out of it.

[itstippy]

My home State has big problems looming that will be addressed by slashing spending. There are no emergency (oops, sorry, "stimulus") ARRA funds available to any of the States this year, and tax revenues have not increased enough to close the gap. Medicaid is the biggest unfunded item, bailed out last year by ARRA. If the numbers bore you, at least read the last two paragraphs:

www.thewheelerreport.com/releases/February11/0207/0207doamemo.pdf

SCOTT WALKER GOVERNOR
MIKE HUEBSCH SECRETARY
Division of Executive Budget and Finance
Post Office Box 7864
Madison, WI 53707-7864
Voice [phone]
Fax [phone]
TTY [phone]
Wisconsin.gov

Date: February 4, 2011
To: Mike Huebsch
Secretary of Administration

From: Brian Hayes
State Budget Director

Subject: Calculation of 2011-13 Biennial Budget Deficit under LFB January 31, 2011 Reestimates

As you are aware, the Legislative Fiscal Bureau recently released revised estimates of general fund tax revenues for fiscal years 2010-11 through 2012-13. These estimates predict growth in general fund revenues of 4.6 percent in fiscal year 2010-11 (the
current fiscal year) and 3.7 percent and 4.0 percent, respectively, in each of the succeeding two years. These estimates include tax law changes enacted by prior legislatures as well as the tax cuts in support of job creation (health savings accounts, deductions for business that increase employment in Wisconsin, and tax relief for businesses that relocate to Wisconsin) recently introduced by Governor Walker andadopted by the current Legislature.

In light of these recent estimates and the impending introduction of the Governor's biennial budget, the projected general fund deficit for the 2011-13 biennium has been calculated in two ways. The first approach reflects basic costs-to-continue including
debt service on previously authorized general obligation bonds and adjustments to reflect current salaries and fringe benefits for state positions. The second approach adds in agency budget requests. Those requests have been adjusted to rectify unrealistic assumptions included in certain agency budget requests submitted to the Department of Administration on September 15, 2010.
The adjustments include adding $1.2 billion GPR to the Department of Health Services budget request to reflect questionable caseload and federal aid assumptions in the
Medicaid program. The other change removes over $800 million in assumed lapses included in the Department of Administration budget request for prospective cuts.

Taken together, these changes add over $2 billion GPR to more accurately portray the budget challenge facing the Governor and Legislature.

Mike Huebsch, Secretary of Administration
Page 2
February 4, 2011

General Fund Condition Statement under basic cost-to-continue assumptions (adjusted base appropriations, debt service reestimates, and standard budget adjustments to reflect current employee salary and fringe benefit levels)

($ in millions)
FY11 FY12 FY13
Opening Balance $26 $121 -$559
Taxes $12,691 $13,164 $13,690
Departmental Revenues
Tribal Gaming 22 26 28
Other 834 446 489
Total Annual Revenues $13,547 $13,637 $14,207
Total Available 13,573 13,758 13,647
Gross Appropriations 13,745 14,500 14,730
Compensation Reserves 96 96 96
Less Estimated Lapses -389 -279 -534
Net Appropriations $13,452 $14,317 $14,292
Gross Balance $121 -$559 -$645
Annual Difference -- Revenues vs. Expenditures $96 -$681 -$85

Mike Huebsch, Secretary of Administration
Page 3
February 4, 2011

General Fund Condition Statement under realistic agency budget request assumptions (adjustments made for Medicaid and state agency lapse estimates). with LFB Reestimates
($ in millions)
FY11 FY12 FY13
Opening Balance $26 $121 -$1,803
Taxes $12,691 $13,164 $13,690
Departmental Revenues
Tribal Gaming 22 26 28
Other 834 446 489
Total Annual Revenues $13,547 $13,637 $14,207
Total Available 13,573 13,758 12,404
Gross Appropriations 13,745 15,744 16,444
Compensation Reserves 96 96 96
Less Estimated Lapses -389 -279 -534
Net Appropriations $13,452 $15,560 $16,007
Gross Balance $121 -$1,803 -$3,603
Annual Difference -- Revenues vs. Expenditures $96 -$1,924 -$1,800
November 20th Report (excluding DOA lapses /including higher Medicaid)

As you will notice, the Governor will have to address a $3.6 billion biennial gap between agency budget requests and estimated revenues. On an annual basis, the gap is $1.9 billion in fiscal year 2011-12. This represents 12 percent of the gross appropriation levels included in agency budget requests for that fiscal year.
Agency budget requests add $2.9 billion to basic costs-to-continue. Nearly two-thirds of this increase is for Medicaid, with much of that amount associated with replacing one-time federal Medicaid revenues under the federal American Recovery and
Reinvestment Act of 2009.

[rovo]

itstippy, I can't get the link in #13 to do anything. Perhaps you could copy the important parts to the thread.

[itstippy]

Sorry, it's a PDF and doesn't open properly in some browsers. Also doesn't copy worth spit. I pasted it above and tried to clean up the format a little.

We also took $200 million from the Patients Reimbursement Fund to balance the budget last year that has to be put back (it was illegal to take it) and we owe Minnesota about $50 million in tax revenues unduely taken from folks who live in Wisconsin but work in Minnesota.

[djrick]

Just found a link for FL cuts including VA there but first will post this........

www.reuters.com/article/2011/02/05/us-jobs-veterans-idUSTRE71374A20110205?feedType=RSS&feedName=domesticNews
(Reuters) - More than 15 percent of Iraq and Afghanistan war veterans were unemployed in January, far higher than the national jobless rate and the highest since the government began collecting data on veterans in 2005, the Bureau of Labor Statistics said on Friday.

That rate could go even higher if the U.S. military begins winding down operations in Afghanistan and a flood of veterans return home looking for work, a veterans' advocate said....






81 million being cut to 45 million. BWAHAHAHA

blogs.orlandosentinel.com/news_politics/2011/02/scott-proposes-3-3-bill-cut-to-education.html

[djrick]

People were cheering when Scott got elected ...now they are freaking ...because its the "not in my back yard mentality

Read more: notmsnmoney.proboards.com/index.cgi#ixzz1DWCtqbJz

Spot on! Forgot to mention he is increasing the budget for his office, lol.

[djrick]

Frank, I heard that FL new gov is proposing shutting down two of their prisons...

Even if you are not from FL, people should take a look at these budget cuts

The three largest items in red parentheses are EDUCATION, COMMUNITY AFFAIRS, and JUSTICE ADMINISTRATION, with STATE COURT SYSTEM a close 4th.

and then increasing his own office and the largest increase HEALTH ADMINISTRATION.

[decoy409]

Thought I would contribute to this thread with a tad of news from yesterday,

Quote: Feb.9,2011 Lawmakers Oppose Federal Bailout for States
WASHINGTON — The new Republican-led House is showing no appetite for making federal taxpayers help state and local governments cope with widespread budget problems. Even some Democrats are wary, underscoring the impact of Washington's crushing budget deficits.


For the coming fiscal year, the 50 states face combined expected deficits of $125 billion, according to the liberal Center on Budget and Policy Priorities. Unlike the federal government, nearly all states are required by their constitutions to balance their budgets. Now, the GOP is spearheading an effort to vilify government workers and create a pathway for state bankruptcies. "The era of the bailout is over," Rep. Patrick McHenry, R-N.C., told a House hearing on the debt problems facing scores of states and municipalities around the country.

At the same hearing, Rep. Mike Quigley, D-Ill., said states need to erase their deficits and face up to their long-term obligations such as pensions for government workers on their own. He also criticized a proposal some conservatives have made that Congress pass a law allowing states to reorganize their debts by declaring bankruptcy, an idea that opponents say would send state borrowing costs soaring.

"I don't think either one of those options can work or are optimal," Quigley said.

McHenry chairs a subcommittee of the House Oversight and Government Reform Committee that oversees federal bailouts, which was holding a hearing on the issue. Quigley is the top Democrat on that panel.

House Majority Leader Eric Cantor, R-Va., has also said there will be no federal bailout for fiscally ailing states.

Washington has pumped billions of dollars to state and local governments during the past two years from President Barack Obama's $814 billion economic stimulus program. But that aid is ending, and states and municipalities face huge projected deficits for this year and next.

For the coming fiscal year, the 50 states face combined expected deficits of $125 billion, according to the liberal Center on Budget and Policy Priorities. Unlike the federal government, nearly all states are required by their constitutions to balance their budgets.

Despite bipartisan agreement that Washington's budget problems mean that governors can't expect help from federal taxpayers, the two parties used the hearing to blame different culprits for the states' problems.

Republicans said the stimulus program let states postpone making their budgets healthier and cited state workers' pensions and health benefits. Democrats said the stimulus let states preserve valuable services and defended public employees, and said most states' budget imbalances are largely due to the huge bite that the weak economy took out of tax collections.

Citing worries that state workers could see their pensions cut, Rep. Elijah Cummings, D-Md., said, "One of my concerns is when the storm is over, then these folks have been locked out of a lot of money they were due."

McHenry blamed the wide-ranging budget problems chiefly on states' huge pension obligations, citing "the looming burden of paying out trillions of dollars in lucrative public sector union pension and health care benefits that come at the expense of taxpayers."

He said public employees on average have better salaries and benefits than private workers and said, "Public sector employees and private sector employees are living in two different economies."

He also blamed excessive spending and falling tax revenues caused by the economic downturn, adding, "Reckless spending fueled by bottomless borrowing and guaranteed by endless bailouts is an unsustainable course."

Quigley, the Democrat, said long-term budget imbalances are faced by only six to eight states, including his own state of Illinois. He said those states face major problems caused by rising health care costs and underfinanced pension plans.

"This is why a one-size-fits-all approach, like bankruptcy for states, could do more harm than good," Quigley said.

Besides Illinois, some other states facing especially tough budget problems include New York, New Jersey, California and Texas.

Some states?

How about this, (excerpt) “We’re basically taking wheelchairs from senior citizens,” he said.

Quote: Rhetoric versus reality
www.lasvegassun.com/news/2011/feb/03/rhetoric-versus-reality/

Maybe I would not continue to follow along if I had not read the minutes from that 1950's and 1960's UN report as to how the states would crush on their own as they would eventually have to go on their own due to the insurmountable burden of years of incurred debt.

[decoy409]

Now as posted above is a silent sleeping pill for the most part. 47 states infected with the cancer that has been rotting them away. The big play is only weeks away. In less than 12 weeks some really good stuff is going to shine through through. And then many that have turned their cheeks and put their noses in the air, well they are going to have some neat stuff to be forced to look at and accept as well as smell with that nose high up.