Texas state services unlikely to escape budget ax The hard choices Texas legislators start making on the state budget next month could mean harder times for Texas residents who rely on state services. That is the bottom line as lawmakers draft a budget for the next two years in the face of a shortfall that some put at well over $20 billion, thanks to the recession, past state budget decisions and the demands of a growing population. The ensuing debate over how to meet the expected shortfall will be caught squarely in the intersection of policy and politics as legislators wrangle over what constitutes a spending cut, a tax increase, even the extent of the money gap. With state leaders saying the November election sent a no-new-taxes, lean-government message, no program is expected to escape the knife – including education and health and human services, which take up the bulk of state dollars. For some programs, the budget crunch will mean spending cuts. College financial aid could be cut; class-size limits could be eased in public schools; universities are reducing faculty; reimbursement rates for those who provide care for Medicaid patients have been slashed; a medley of grant programs could be put on hiatus; state payroll could be cut; and some leaders have raised the specter of employee furloughs and shutting some state agencies.
How much ripple effect will state job cuts create? – The Oregon government will have to cut back to deal with that $3 billion deficit, and some people are worried that the cuts will send Salem’s economy spiraling back down into recession. The Statesman Journal is working on a series of articles aimed at assessing the depth of these economic fears and judging whether or not they are founded. We’re already seeing some of the scrambling that the state will have to do to keep providing services. Last week’s meeting of the E-Board featured legislators shifting around millions of dollars in state and federal money to make sure that services such as day care and senior care remain in effect and prisons and Oregon Youth Authority centers continue to hold offenders who otherwise would be released to the streets. The impact will start with folks who work for the state. All the sources I talk with on a regular basis figure that layoffs at state agencies are inevitable. That $3 billion is just too daunting a number to contemplate without including some job losses.
Markets Ponder China Bailing Out Europe (Again) – OK, OK, so I am using the term "bailing out" in a very loose sense: For instance, China has not quite said that its continued patronage of US debt in the wake of the financial crisis is specifically to bail out America. Rather, it’s always couched in diplomacy-speak such as preserving "stability" in the global financial system as a certain Yankee diplomat-beggar would put it. I almost missed the clip above of LSE IDEAS’ very own Niall Ferguson arguing that the Chinese should help bail out China on Fareed Zakaria’s GSP programme. (Despite what our school paper says, he does work here.) This theme has been a continuing one: former IMF Chief Economist Simon Johnson even went so far as to suggest its headquarters should be in Beijing if and when the Chinese become the largest shareholders. Somewhat less far-fetched, China has indeed voiced support for the idea of diversifying its holdings by purchasing sovereign debt of troubled eurozone members (which ares still denominated in euros). So it is that newswires are abuzz with news that the Chinese are once again making noises to similar effect:
The Tax Vox 2010 Lump of Coal Award, Job-Killing Edition – Tax Policy Center -It’s time for Tax Vox’s fourth annual Lump of Coal Award, given to 2010’s worst moments in fiscal policy. Bad law, outrageous rhetoric, and months of inaction made it tough to choose, but here are our Top 10 nominees:
Pension Insurance for Public Employees? – The New York Times’ story about the insolvent pension plan of Pritchard, Alabama notes that while the Pension Benefit Guaranty Corporation (PBGC) partially insures private employers defined-benefit pension plans, it does not insure public employers’ defined-benefit pension plans ("government plans" in ERISA-speak). This left me wondering why? From an employee’s perspective, such insurance is seems desirable–an employee with a defined-benefit pension plan has a large, undiversified risk in the plan itself. I don’t see any strong employee-side objections. Maybe there are insurance issues that explain the exclusion of public employer plans, but they don’t leap out at me. There are moral hazard concerns with any sort of insurance program, but are they substantially different with public employers? There could also be adverse selection problems if public pension insurance were optional.
Census 2010: population shifting to states that are more Republican, more Hispanic, Fatter – The many conflicting interpretations of the shifts in population across states, just revealed in Census 2010, read like a tutorial in how difficult it is to interpret data when you use only one dimension. Population shifting to Republican states, Republicans win! Wait, the reason those states grew in population was more Hispanic immigrants, Democrats win! My own pathbreaking insight is how the population is shifting to states, that are, well, how to be polite about this(?), populated by persons with somewhat larger belt sizes. Notice the (partial, not perfect) similarity of the maps showing which states gained population to the map below:
Senate Adjourns Without Voting on Fed Nominee – The U.S. Senate adjourned for the year without voting on Nobel Prize-winning economist Peter Diamond’s nomination to the Federal Reserve Board, placing his nomination in further jeopardy. Several Republican senators have argued that Diamond lacks sufficient macro-economic policy experience at a time when the agency is facing the challenge of trying to simultaneously stimulate the U.S. economy and tackle concerns about future inflation.
Bankers’ Pay on the Line Again – Simon Johnson – The people who run big banks in the United States have had a good year. They pushed back hard on financial regulatory legislation during the spring and were able to defeat the most serious efforts to constrain their power. They and their colleagues outside the United States scored an even bigger win at Basel this fall, where the international committee that sets financial safety standards decided to keep the required levels of equity in banks at dangerously low levels. And the counternarrative for the 2008 financial crisis, “Fannie Mae made me do it,” gained some high-profile Republican adherents closely aligned with the men who will control the House Financial Services Committee in 2011-12. Yet a potential lump of coal in their stockings may be in store for the biggest banks, in the form of restrictions of pay – both its structure and perhaps even the amounts (although officially the latter is not currently on the table).