Tag Archives | budget crisis

Down to the wire on the Omnibus spending bill

There are two outcomes I can see for the House and Senate budget fight: (1) Compromise; (2) Punt.

“Compromise” would involve significant budget cuts. For example, the IRS budget shows that the House and Senate have agreed to an overall ~ 5% cut — they just need to agree what to cut. The House has completely defunded the Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act of 2010 (ObamaCares). This is where the battle will occur, since the Senate has only defunded outside collection agencies.

“Punt” would involve another Continuing Resolution. And more waiting. For those of us who work for the federal government, the wait is tense. No one really knows where the cuts will be or if it will affect them.

On breaking unions, states filing bankruptcy, and public pension underfunding

During the Great Depression, Congress passed an act saying states and municipalities could file for bankruptcy. The law was challenged and part of it was overturned by the Supreme Court in 1936 in Ashton v. Cameron County Water Imp. Dist. Congress then rewrote the law so that municipalities could file bankruptcy. However, the Supreme Court specifically ruled that the federal government did not have the authority to “restrict the States in the control of their fiscal affairs” and that ruling still holds. In other words, it was a clear issue of states’ rights. Thus, there is no provision in federal law for states to file bankruptcy. Also, bankruptcy courts are federal, not state. Therefore, there is no way for states to declare bankruptcy.

This is obviously of more than academic interest as many states, including California, are facing severe budget deficits. Without bankruptcy, the only option, should obligations not be able to be met, is to default on bond payments as well as not meet other obligations.

Some Republican lawmakers want to change this. They want states to be able to file bankruptcy, and they also want to force states and municipalities to use stricter private pension fund accounting rules to determine their liabilities. Currently, public pensions are allowed to assume far more generous (and utterly unrealistic) rates of return than private pensions can. House members Devin Nunes, Darrell Issa of California, and Paul Ryan of Wisconsin have introduced a bill to mandate the more conservative rules. If the pensions refuse, they would not be allowed to issue tax-exempt bonds. This would directly impact all three of the major public pensions in California, including CalPERS.

Even liberals will have trouble arguing that public pensions should not have to follow the same accounting rules that private pensions do. However, they are also alarmed that such rules, along with states being able to go bankrupt, are actually a conspiracy to go after public unions and pension funds. Let me assuage their fears. It’s not a conspiracy at all but rather in plain view for all to see.

Here’s how it would work. California files bankruptcy. A federal judge oversees what comes next. Normally, bondholders go to the head of the line. A crucial part of a new bankruptcy law is that it must have a ‘cram-down” provision that forces bondholders to take pennies on the dollar and not allow them to protest and drag the process out for years (Without such a provision, such a new law would simply be a gift to investment banks and hedge funds, allowing them to grab most if not all of the money.) Here’s the crucial part. The trustee for the bankruptcy would also have the power to break or re-negotiate public pension agreements. This is where the coming brass knuckles fight in California will be, with public unions and their pensions fighting an attempt by conservatives to break their power, influence, and to re-do existing pension agreements.

Many liberal blogs and commentators are howling about this. If they want to prevent it, then they need to explain where the money for the state budget and its woefully underfunded public pensions will come from. This is not a made-up crisis. The money really isn’t there

Crossposted from CAIVN

Rethink Afghanistan: How to Get What You Pay For

I am the Afghanistan Blogging Fellow for The Seminal and Brave New Foundation. You can read my work on The Seminal or at Rethink Afghanistan. The views expressed below are my own.

As of this morning, the cost of our war in Afghanistan hit the $1 Trillion mark:

You can head over to Facebook and tell us what you would do with a trillion dollars. You’d be surprised at what you could be getting for that money. You could buy Facebook, Twitter, and LinkedIn many times over, or buy health care for everyone. Only it’s just a game, isn’t it? You’re not really buying that stuff. But as the video says, you’re not really getting what you’re paying for in Afghanistan either.

You’re not any safer because of that money. If anything, you’re less safe because of that wasted money. California had to cut its “Healthy Families” program, among countless other basic human services. We’re supporting corrupt drug addicts and committed war mongers overseas. We even have airplanes literally falling out of the sky because of how our broken our economy is. That trillion dollars is gone, the war is coming up to its 104th month, and we have only disaster to show for it.

But don’t be fooled by our Facebook app. It’s more than just a game. No, you can’t buy Bill Gates or the Large Hadron Collider, but you can actually force the government to spend money on programs which do make us safer. You can even cut off the war ending funding entirely. After all, the cost is just hitting $1 trillion, it’s not stopping there. It’s only going up, faster and faster as President Obama’s escalation continues. It’s not as simple as dropping your items in a shopping cart, but it doesn’t take much more than that either. With just a little bit of action, you can go way beyond a Facebook game and actually accomplish real change. Continue Reading →