States vs. Feds
There is a war going on but it is not one we are reading about in the news.
As tax revenues decline, the federal government can operate with deficits. By law, states and counties must balance their budgets. Given that federal law and regulations create significant program requirements and expenses for state and local government, growing deficits will exacerbate the tension between the federal government and states and between states and counties.
Throughout state and local government, you have millions of people who work hard and make the day-to-day operations of government go, often with surprisingly little resources. Watching more than $10 trillion of bailouts go to a handful of large banks is deeply disturbing to them. Capping bankers compensation at $500,000 is cold comfort to a city manager or state legislator struggling to raise a family on much less.
Before passage of the stimulus package, California was not reimbursing counties for mandated programs. California counties were threatening to withhold payments to the state or sue. Right before house passage, a group of eighteen governors issued a press release supporting the Administration’s proposal. If you look at the list, it is the ones that should be hurting the most.
My read of the stimulus package is that it was designed to provide a great deal of money to ease the financial pain that the states and municipalities are experiencing. It is not described that way — but I think that is what it is and what got it passed. The stimulus package is expected to cost $789 billion. The financial stability plan is expected to add $2.2 trillion to the $8.5 trillion authorized by the US Treasury and the Federal Reserve for bank bailouts. Behind the scenes, the states had to get their half a trillion or so to go along with the bankers getting another $2.2 trillion.
After playing with the numbers, my intuition says that this money is enough to push the state problems out to September, maybe October. The states will need a lot more money in the 2010 federal budget which will go into effect on October 1, 2009. That means the House and Senate appropriations committees will be a hot place to be this summer and the September reconciliation could get pretty wild.
We now have legislators in four states that have introduced legislation to require state administration to set up electronic payment systems using gold.
Now we have rumbling about state constitutional rights in New Hampshire, Missouri, Arizona and Oklahoma:
Within the decision making circles of state and local government may be where the war for the hearts and minds of this country will be decided. A network member told me tonight they heard a state legislator announce they had persuaded state administration officials to move state funds to local banks.
Remember, state legislatures can pass laws to try to stop federal lawlessness. State and local government (including pension funds) can also stop financing lawlessness. Which would be a good thing because then we could reinvest our essential government reserves and pension funds in things that have a better chance of having and holding real value.
Mapping The Real Deal is a column on Scoop supervised by Catherine Austin Fitts. Ms Fitts is the President of Solari, Inc. http://www.solari.com/. Ms. Fitts is the former Assistant Secretary of Housing-Federal Housing Commissioner during the first Bush Administration, a former managing director and member of the board of directors of Dillon Read “ Co. Inc. and President of The Hamilton Securities Group, Inc.