Government Dependency

Lending Federal Dollars to States Will Bankrupt Us All

July 9, 2010

EducationNext.org - University law professors have a knack for dreaming up ever-more-far-fetched ideas, so no one should pay any attention to the latest one – except for the fact that its potential political appeal makes it downright dangerous. Christopher Edley, dean of the law school at the University of California, Berkeley, has proposed that the U. S. government stimulate the economy by loaning money to near-bankrupt state governments.

Edley is concerned that states are “managing huge budget crises” by “cutting spending and raising taxes.” Edley, like all other Keynesian liberals, believes such responsible actions simply undermine “the federal stimulus.”

So in Edley’s world, any state that has gone on a financial bender — Illinois, California, New York, you name it — should be encouraged to borrow as much as it wants to cover those massive state bills state taxpayers don’t want to pay.

If the Edley law ever gets passed, it’ll be “happy hour” for the teachers, janitors and other school district employees collecting rising salaries and generous pensions — even while private sector workers are desperate to hang on to their jobs. Education expenditures can continue to rise unimpeded, because everyone will be reassured that they come with no additional taxes. The state government will simply borrow the money from their friends in Washington. Cities and towns can get in on the action as well, because nothing prevents states from passing on the borrowed money to lower levels of government.

But in the long run, Edley’s law would wreck the system of federalism we have had for the past two centuries and more. The American federal system — with states and localities playing a strong, independent role in the governance of the country — has always had a fiscal system that has kept states and cities responsible, so they do not spend beyond their means. For two centuries, the bond market has reminded states that interest rates rise when they, like the Greeks, the Spanish, and the Italians, spend many more dollars than they collect in tax revenues. When states and cities can’t keep their houses in order in good times, they suffer in bad ones. Because the discipline of the bond market works so effectively, states and localities have generally had both the autonomy and the responsibility that makes for good government.

Editor's Note: "President Nixon, on March 27, 1969, through the Government Reorganization Act, divided the United States into 10 Regions. To further implement this Regional Governance over the U.S.A., President Nixon signed Executive Order 11647 and entered it in the Federal Register February 12, 1972 (Vol .37, No.30). Through the authority vested in him as President of the United States, President Nixon established a Federal Regional Council for each of the 10 standard regions. It stated that, the President shall designate one member of each Council as Chairman of the Council and such Chairman shall serve at the pleasure of the President. The fact that State borders have been destroyed to create 10 REGIONS instead of 50 Union States is something your government doesn't want you to know... Grant making agencies of the 10 Federal Regions are in place to assure continuity of control by the central government over all Americans and their elected representatives. Federal grants to state government are the fuel which make the Regional engines 'go.' The individual Union States are blackmailed, through the withholding of federal funds, if federal legislation is not enacted into State law, thereby opening the door to a power base for the silent revolution of Federal Regionalism." - Federal Regionalism, The Abolishment of Local Government, Barefoot's World, August 14, 1997

Once the federal government promises to bail out irresponsible states with federal loans, there is nothing left at the state level to keep the spenders under control [See chart below]. It will be no longer “tax and spend” but “spend and no tax,” a vastly more popular political slogan.

What’s worse, Congress will have no incentive to keep “loans” to states and cities from accelerating in the same way Fannie Mae loans did. None of the Edley loans to states made by the federal government will count against the national deficit any more than Fannie Mae loans did—until the agency went belly up.

Indeed, under the Edley plan, Congress will have still another way to spend money without it ever contributing to the country’s vast annual deficits. Take Medicaid as an example of how this can work. Congress can ask states to pay more of the Medicaid bills, then “loan” the money to the states to cover the cost. Congress is spending the money, but none of that expenditure ever appears on the federal accounts—until, of course, things grow hopelessly out of control.

Edley, of course, creates some imaginary safeguards, such as requiring loans to be promptly paid when good times return. But, of course, any future Congress can extend repayment deadlines. In the meantime, everyone can pretend, as Edley already is, that the cost to the federal government is “nothing.”

He explains, blithely, “there would be zero risk of default, and a guarantee of full repayment plus interest.”

As States Cut Public Workers, Congress Is Reluctant to Act

June 29, 2010

Washington Independent -... As state and local governments prepare to begin their new fiscal year on July 1, they are frantically cutting not just teachers, but social workers, firefighters and police officers.

The reason? Last year, the federal government provided stimulus funds [see chart below] for states to make up their yawning budget gaps. (Every state save for Vermont is required to keep a balanced budget.) This year, Congress has declined to step in.

It looks like 2010 might be the annus horribilis for those state budgets, according to the Center on Budget and Policy Priorities.

“Even though state tax revenues are starting to rebound a little bit, the absence of the federal assistance from last year and the need to pass the [state Medicaid funding] and education assistance is huge,” Jon Shure, the deputy director of the CBPP’s state fiscal project, explains. “There’s reason to believe this year will be the worst.”

The teachers and other public-sector employees might be just the start. The CBPP has estimated that if states cut their spending from 2009 to 2010 the same level they did from 2008 to 2009, it might cost as many as 900,000 public- and private-sector jobs — swelling the ranks of the unemployed by five percent or more.

While the outlook this year is bad, it is hardly better down the road.

“Usually after a recession ends it takes a couple years for state revenues to rebound,” Shure says. “If it normally takes two to three, and this recession is among the worst ever, we’re really in uncharted territory.”

Now deep in that uncharted territory, states crafting their third straight recession-era budgets have no recourse but to slash services and jobs.

For schools, “the cuts are definitely going to hurt a lot more and deeper in poor urban districts,” says Elena Silva, senior policy analyst for the think tank Education Sector.

“The teachers there are much more important, much more urgent for those kids. If they lose a year or three months [of educational gains], it hurts a lot more for kids in struggling schools than suburban kids. It’s a double effect: In cities, there are more teachers laid off because of budget gaps, but the kids in those cities are most vulnerable and most likely to be hurt by budget cuts.”

Facing overstuffed classrooms and reduced police patrols, the Obama administration has led a furious charge to convince Congress to help the states meet their budget needs. In a letter to the majority and minority House and Senate leaders earlier this month, President Obama wrote,

“I am concerned … that the lingering economic damage left by the financial crisis we inherited has left a mounting employment crisis at the state and local level that could set back the pace of our economic recovery.”

He continued: “If we allow these layoffs to go forward, it will not only mean hundreds of thousands fewer teachers in our classrooms, firefighters on call and police officers on the beat, it will also mean more costs helping these Americans look for new work, while their lost paychecks will mean less tax revenues and less demand for the products and services provided by other workers.”

But despite the efforts of individual members of Congress and the administration, the House and Senate have come up short on delivering aid to the states. Democrats cut extended stimulus funding for Medicaid through the end of this year — not, as many states had anticipated, through June 2011. On Thursday, centrist deficit hawks finally refused to vote for the trimmed-down jobs bill.

Update: On July 22, Congress approved legislation to restore unemployment benefits to people who have been out of work for six months or more. However, GOP opposition forced Democrats to drop $24 billion in aid to state governments to help them avoid layoffs and higher taxes, as well as a popular package of expired tax cuts and a health insurance subsidy for the unemployed. Most Republicans opposed the measure because it would add $34 billion to a national debt that has hit $13 trillion, arguing that it should have been paid for with cuts to other programs, such as unspent money from last year's economic stimulus bill. - The Associated Press

Take Alabama, for instance. The state’s legislature had already adjourned for the fiscal year, its budget set with an expected $197 million in federal Medicaid money. Much of that money is now gone.

California, too, is reeling.

“I support restraining federal spending, but cutting the only funding designed to help states maintain the very safety-net programs Congress mandates us to preserve will have devastating consequences,” Gov. Arnold Schwarzenegger (R-Calif.) wrote in a letter to his state’s congressional delegation in response to the funding drop.

The reduced Medicaid funding has not only meant the end of special programs, such as anti-domestic violence initiatives, daycare and mental health services. It will end up costing teachers and other public-sector workers too. States such as Pennsylvania are reacting to the Medicaid funding cut by rearranging their budgets — and sacking workers.

And other, bolder provisions to save local jobs are dead in the water. Rep. George Miller’s (D-Calif.) Local Jobs for America Act would have provided $75 billion to local governments to keep employees on the payroll. It is stuck in committee. Sen. Tom Harkin’s (D-Iowa) proposal to grant $23 billion to keep public-school teachers in their classrooms, the Keep Our Educators Working Act, one of several such edu-jobs proposals, has foundered despite support from Education Secretary Arne Duncan and the White House.

As of yet, the Senate has no plans to authorize any additional funds to help states close their budget gaps — and with teachers unions protesting and citizens starting to question the cuts, Silva, of Education Sector, sees a “huge political mess” fomenting for the fall.

“A lot of people running for office now are not going to be in really good shape,” she notes. “If you watch those districts where there have been significant teacher layoffs, unpopular layoffs, it will be interesting to see where the blame falls.”

Government Dependency

States Struggle to Pass Budgets without Federal Stimulus Dollars

June 28, 2010

Associated Press - For cash-strapped states counting on federal stimulus money, the news was a stunning blow: A deficit-weary Congress had rejected billions in additional aid, forcing lawmakers into a mad scramble to balance their budgets.

Now, with a new fiscal year just days away in most states, many governors are proposing to make up for the shortfall with tax increases, cuts in essential services and potential layoffs of thousands of public employees.

"I support restraining federal spending, but cutting the only funding designed to help states maintain the very safety-net programs Congress mandates us to preserve will have devastating consequences," California Gov. Arnold Schwarzenegger said in a letter to his state's congressional delegation.

California faces a whopping $19 billion deficit -- more than 20 percent of the state's total budget -- despite deep cuts that have already been made to many programs. Its new fiscal year begins July 1, and a budget deal there is nowhere in sight.

The federal stimulus program enacted last year is set to expire in December. Much of the money goes to states to provide unemployment insurance and to help offset cuts to education, health care and public safety brought on by the recession ...

A few states that counted on additional stimulus money to balance their budgets drafted contingency plans in case the money did not come through.

In North Carolina, where lawmakers passed a budget that included $525 million in additional stimulus money, a contingency plan was established to hold back a scheduled $139 million contribution to the state employee retirement account and to levy a 1 percent across-the-board spending cut that could result in numerous layoffs.

In Massachusetts, the loss of an estimated $687 million in federal funds forced budget negotiators to come up with two versions of the state budget -- one that included the money and one that did not.

To help close the hole in the version of the budget without the extra federal dollars, lawmakers diverted nearly $200 million from the state's "rainy day" savings account and made a series of targeted cuts in other parts of the budget.

Some states, unwilling to count on the federal assistance, crafted budgets that did not depend on extra assistance from Washington at all.

"We assumed conservatively that there would not be a bonus check," Indiana Gov. Mitch Daniels told The Associated Press. "It would have never entered our mind to put funny money like that into the budget."

Daniels, a former budget director under President George W. Bush and a possible 2012 presidential contender, has won praise for his fiscal stewardship in Indiana, which has weathered the downturn better than most industrial states.

"Frankly, I think it'd be irresponsible of the federal government to borrow more money in order to bail out states that didn't handle themselves very well," Daniels said...

Premature End of Federal Assistance to States Threatens Education Reforms and Jobs

Loss of Education Jobs Stands at 105,000 and Rising; Recovery Act Saved 350,000 Jobs But Will Soon Expire

May 25, 2010

Center on Budget and Policy Priorities - Recovery Act assistance to states will largely run out this year, which could not only eliminate hundreds of thousands of jobs and undermine basic education services but also impede education reform efforts. As Education Secretary Duncan recently told Congress,

“We are gravely concerned that the kind of state and local budget threats our schools face today will put our hard-earned reforms at risk.”

The recession has driven down state revenues by record proportions. Education makes up the largest single item in state budgets, and spending cuts there have been deep and widespread. Federal aid through the American Recovery and Reinvestment Act has lessened the impact of state budget shortfalls on education and other state services, but that aid will soon be depleted. Meanwhile, serious state budget shortfalls will likely persist for at least the next two years, reaching an estimated $180 billion in fiscal year 2011 (which in most states will begin July 1) and $120 billion in 2012. This sets the stage for even more severe cuts as states wait for revenues to recover to pre-recession levels. For 2011, legislatures and governors are enacting budgets with cuts that go even deeper than those enacted over the past two fiscal years ...

The New Health Law Will Affect States' Budgets

April 4, 2010

NPR News - Last month, Arizona did something no state had ever done — or is likely to ever do in the future. As part of its effort to close a $2.6 billion budget gap, Arizona became the first state to eliminate funding for its Children's Health Insurance Program. Lawmakers decided to make deep cuts in Medicaid as well, kicking 300,000 adults off the rolls as of January.

At least, that was the plan. But five days after Republican Gov. Jan Brewer signed it into law, President Obama signed the new health law. That had the effect of voiding Arizona's effort. The federal health care act bars states from lowering eligibility requirements for either CHIP or Medicaid over the next several years. Otherwise, they risk losing Medicaid funding altogether.

Because Arizona's cuts hadn't officially taken effect, state lawmakers now have to cancel them to comply with federal requirements. That will leave a $400 million hole in their new budget. All told, Arizona officials estimate the federal law will cost the state $11.6 billion over the next 10 years.

Brewer calls that "financially devastating." She signed a bill Thursday that gives her the authority to sue the federal government over the law, even though the state's attorney general has refused to do so.

Many other states — nearly all of which are facing budget shortfalls — are similarly concerned about how much the health law will end up costing them. States that have traditionally offered lower levels of coverage, such as Arizona, will no longer have the option of cutting health spending much in tough times.

And, because states will operate major portions of the federal expansion, they face other challenges. California predicts that the cost of administering the new programs alone will run the state $2 billion to $3 billion.

"There's no way, in my view, that this is not going to cost states," says Scott Pattison, executive director of the National Association of State Budget Officers.

State-run exchanges are one of the cornerstones of the new law. These will be marketplaces where individuals and small businesses sign up for private insurance plans. The idea is that they'll work like travel Web sites such as Orbitz and Expedia, giving individuals and human resource managers their pick among several competing plans.

But the exchanges aren't simply one-stop shopping tools. They will also determine how much government assistance each person is entitled to. The federal government will subsidize private insurance for individuals who earn up to 400 percent of the poverty level, on a sliding scale. The exchanges will determine how much help each person should get.

The exchanges also will figure out whether an individual, even though she may be applying for private coverage, actually meets the requirements for CHIP or Medicaid. That means states need to get often outmoded database systems talking to each other.

States that have tried to synchronize applications across various assistance programs have found it rough going, even on a much smaller scale, says Jeff Smith, a health consultant with the Lewin Group in Virginia. Under the health law, states will collectively process income and eligibility information for up to 30 million families, he says.

"It's very, very difficult to bring all the disparate pieces into one system and make them work together," he says. "I don't think states fully understand the magnitude of what's involved here."

It can be done. After passing a similar individual-mandate law in 2006, Massachusetts got its exchange up and running within six months. Under the federal law, other states have until 2014. (Utah is the only other state with an existing exchange.)

But Massachusetts started out with many advantages. Its uninsured population was relatively small and the state boasts the nation's largest number of physicians per capita.

States that have already expanded coverage in recent years, including Massachusetts and Maine, have learned how to reach out to working populations and negotiate with private insurers.

Not all states have that experience. States such as Arizona and Alabama, which historically haven't provided broad coverage, have reason to worry about how they're going to bring their administrative and health system capacity up to speed — and how they're going to pay for it.

"If you've been running a fairly basic program and you imagine a major influx of people coming into Medicaid, you're wondering who is going to provide care to those people and how are we even going to sign them up," says Alan Weil, executive director of the National Academy for State Health Policy. "The magnitude of the task is definitely greater in the states that have not taken those steps, to learn a lot of lessons about expanding coverage."

Leaving aside constitutional challenges brought by 14 state attorneys general, this is the real fault line dividing opinion about the new federal law among states. Some states are confident they have the ability and expertise to meet its challenges, while others remain wary. Some are having to shift gears entirely, from making big program cuts to preparing for vast expansions.

Cindy Mann, who oversees Medicaid and CHIP for the federal government, recognizes that states will have additional costs under the law, but she points out that states will receive help on implementing — and paying for — their new coverage responsibilities. The feds will not only pick up the tab for newly eligible Medicaid recipients but devote more dollars to CHIP as well.

"This helps states avoid other costs they would bear if the Medicaid program wasn't there," Mann says, such as underwriting care for the uninsured at community health centers.

But Carol Steckel, Alabama's Medicaid commissioner, says her state can barely afford its share of Medicaid costs now. She predicts the new law will bring 400,000 more people into her state's Medicaid system by 2014 — doubling its size. That means even greater costs for the state down the road, despite increased federal subsidies for Medicaid.

"I'm going through my mourning period of how much work there's going to be," she says. "We're for bleepin' sure going to have to think outside the box."

Government Dependency

According to the Associated Press, some two million people hold federal jobs. Contrasting this with the 11 million Americans who are currently out of work begs the question, "Just what is the need for this many fed jobs at this time?" What is more, the Obama stimulus plan, such as it is suggested, includes a number of provisions that point to an increased need for federal workers and also government workers at the state level. - Sylvia Cochran, Local Government and Fed Jobs Increase While Private Sector Jobs Decrease, Associated Content, February 2, 2009

As Federal Stimulus Fades, Private Hiring Falters

Surge in Census jobs in May masks underlying employment weakness

June 4, 2010

MSNBC - Friday's employment report underscores the critical transition now underway in the U.S. economy. As the impact of government stimulus fades, job creation will have to come from growth in the private sector.

The latest data on the job market weren't encouraging.

A wave of hiring by the government brought a surge in employment; some 431,000 jobs were added for the month. But almost all of them were temporary Census Department jobs that will last for only a few weeks or months. Private sector employers added just 41,000 net new workers to their payrolls in May. Payroll gains were revised downward for March and April by a combined 22,000.

Even forecasters who are upbeat about the economic recovery were discouraged by the numbers.

“You’ll need to see (job gains) of about 200,000 to be considered a serious advance,” said Robert Barbera, chief economist at ITG.

The large number of census jobs added in May will also weigh on employment data in the months ahead. As those short-term jobs expire, they’ll count as jobs lost in the upcoming payroll data.

After a deep contraction that sidelined more than 8 million workers, the U.S. economy posted solid gains in the second half of 2009 and the first quarter of this year. The big snap back was fueled by two powerful forces.

1. First, after panicky businesses slashed production deeply during the recession, inventories of unsold goods all but dried up. A surge in restocking lifted production. But so far, it hasn’t been matched by a big increase in demand.


2. A bigger tailwind came from an historic boost from the federal government — in the form of hundreds of billions of dollars of emergency spending and tax cuts. That stimulus effect has now largely played out, which means the positive impact on the economy is now beginning to fade, which is expected to bring a slowdown later this year. Economists at Goldman Sachs figure GDP growth of three percent in the first half of the year will fall to 1.5 percent in the second half.

The expiration this month of the tax credit for first-time home buyers, for example, is expected to bring a sharp pullback in home sales this summer. The May employment data — showing a drop in construction jobs — may already reflect that housing slowdown, according the Wells Fargo chief economist John Silvia.

Government hiring is also under severe pressure as state and local government’s struggle with a sharp drop in revenues and big budget deficits. Unlike the federal government, state and local agencies can’t borrow to fund the shortfall, which bring more immediate pressure to cut spending. In May, state and local governments cut 22,000 jobs; with more budget cuts looming, those layoffs will likely continue in coming months.

Last month’s employment report — showing a gain of 218,000 private sector jobs in April — had offered hopeful signs that the job market was gaining strength even as government stimulus was winding down. But the numbers for May has cast doubt on that scenario.

“V-shaped recoveries don't have months where we create 40,000 jobs,” said Dan Greenhaus, Miller Tabak's chief economic strategist.

The weak showing for the job market in May also cast doubt on the stock market’s increasingly wobbly advance. European stock markets sold off sharply as the numbers were released, followed by slumping U.S. stock markets.

Other measures of the job market’s strength in May were also mixed. The number of job wanted ads was flat, according to a survey by the Conference Board. An employment survey by the Institute for Supply Management posted a modest gain. Payroll processor ADP reported weak private sector job gains of 55,000 net new hires. The number of people collecting unemployment benefits rose a bit, and the level of new jobless claims is running about 450,000 a week. That’s higher than during past economic recoveries.

“The two areas of potential vulnerability for the economy remain payrolls and housing — and they're both staggering a good deal,” said Art Cashin, UBS’ director of floor operations at the New York Stock Exchange. “And we keep losing close to 1 million people every two weeks. If we're not adding them back in, this is going to be a problem.”

There were some hopeful signs in the numbers. The length of the average works week ticked up a bit, as employers added hours for existing workers. That’s usually a sign of a pickup in demand which, if it continues, will lead to more hiring.

The increase was especially strong in the manufacturing sector, where the average work week increased by 0.3 hours for the month — triple the overall gain in hours worked.

“That's really important because that gives us a gauge of strength in industrial production,” said Chris Probyn, chief economist at State Street global Advisors. “And it looks to me as if the manufacturing hours puts a nice increase in industrial production in the month of May.”

Wages also inched up a bit a bit in May, which will help support consumer spending:

“You can add a million jobs but if everyone gets paid 20 cents an hour it won't make a difference,” said Dan Greenhaus chief economic strategist at Miller Tabak. “You look at jobs to see what people's incomes are and their spending power.”

The overall numbers also mask big disparities in the job outlook for different sectors of the workforce.

Nearly half of those looking for work have been out of a job for more than six months. Older workers — those over 55 — are out of work longer that younger age groups. Nearly 60 percent of older workers were out of a job for six months or more compared to 44 percent of younger workers.

Low-skilled workers are faring much worse than the headline numbers suggest. The unemployment rate for those without a high school diploma rose to 15.0 percent in May; the rate for workers with a college degree fell to 4.7 percent.

“That disparity reflects the continued evolution of labor demand in America over the last twenty years,” said John Silvia, chief economist at Well Fargo.

Senate Approves Jobless Payments to Millions

July 21, 2010

Associated Press – State unemployment agencies are gearing up to resume sending unemployment payments to millions of people as Congress moves to ship President Barack Obama a measure to restore lapsed benefits.

After months of increasingly bitter stalemate, the Senate passed the measure Wednesday by a 59-39 vote.

Obama promised to quickly sign the legislation into law once the House takes a final vote on Thursday.

"Americans who are working day and night to get back on their feet and support their families in these tough economic times deserve more than obstruction and partisan game-playing," Obama said in a statement Wednesday night, criticizing the "roadblocks by a partisan minority" that for weeks stalled the measure's passage in the Senate.

It's a welcome relief to 2 1/2 million people who been out of work for six months or more have seen their benefits lapse.

Under best-case scenarios, unemployed people who have been denied jobless benefits because of a partisan Senate standoff over renewing them can expect retroactive payments as early as next week in some states. In other states, it will take longer.

State unemployment and labor agencies have been preparing for weeks for Congress to restore jobless payments averaging $309 a week for almost 5 million people whose 26 weeks of state benefits have run out. Those people are enrolled in a federally financed program providing up to 73 additional weeks of unemployment benefits.

About half of those eligible have had their benefits cut off since funding expired June 2. They are eligible for lump sum retroactive payments that are typically delivered directly to their bank accounts or credited to state-issued debit cards.

The Senate continued debating the measure a full day after a GOP filibuster was defeated by a 60-40 vote. Senate rules required 30 hours of debate, but missing no opportunity to seize a political edge, Democrats attacked Republicans for not waiving them and requiring an additional day of debate.

"Republicans are declaring an all-out war on unemployed Americans," said Jim Manley, spokesman for Majority Leader Harry Reid, D-Nev. "Even though Democrats have the votes to give unemployed workers the safety net they deserve, Republicans are callously delaying the vote for an entire day."

In fact, the measure could have been passed months ago had Democrats not insisted on coupling it with a host of other, more controversial legislation, such as tax increases on hedge fund managers and on some small businesses that were used to pay to renew a popular package of tax breaks for individuals and businesses.

The resulting delays required two temporary unemployment insurance extensions — one came only after a lapse in coverage because Reid adjourned the Senate for its two-week Easter recess rather than engage in a time-consuming battle with Republicans. Benefits were restored retroactively.

Democrats have become more aggressive in attacking the GOP for opposing the measure, which has been stripped down so that it's essentially limited to a $34 billion, six-month renewal of unemployment insurance for the chronically jobless.

Republicans say they support the benefits extension but insist any benefits be financed by cuts to programs elsewhere in the $3.7 trillion federal budget. Maine GOP moderates Olympia Snowe and Susan Collins were the only Republicans to support the bill Wednesday. Sen. Ben Nelson of Nebraska was the only Democrat to break with his party to oppose the bill.

Many Republicans have voted in the past for deficit-financed benefits extension, including as recently as March and twice in 2008, during the Bush administration. But now they are casting themselves as opposing out-of-control budget deficits, a stand that's popular with their core conservative supporters and tea party activists whose support they're courting in hopes of retaking control of Congress.

Democrats tout the economy-boosting effect of unemployment checks since most beneficiaries spend them immediately, and they say that paying for them with cuts to other programs dilutes the stimulative effect.

"Extending unemployment insurance isn't just the right thing to do. It's also the smart thing to do for our economy," said Sherrod Brown, D-Ohio.

Economists say the measure will likely have a modest beneficial effect on the economy. It represents less than one-quarter of 1 percent of the size of the $14.6 trillion economy, and is far smaller than last year's $862 billion stimulus legislation. Republicans have blocked Democratic add-ons, such as aid to state governments, that could have meant a greater economic boost.

32 States Have Borrowed from the Federal Government to Make Unemployment Payments

May 21, 2010

EconomicPolicyJournal.com - Thirty two states have run out funds to make unemployment benefit payments. The federal government has been supplying these states with funds so that they can make their payments to the unemployed. In some cases, states have borrowed billions. As of May 20, the total balance outstanding by 32 states (and the Virgin Islands) is $37.8 billion.

The state of California has borrowed $6.9 billion. Michigan has borrowed $3.9 billion, Illinois $2.2 billion.

Below is the full list of the 32 states (and the Virgin Islands) that have borrowed from the federal government to make unemployment payments, and the amounts that remain borrowed as of May 20 (numbers in red are billions).

Alabama $283 million

Arkansas $330 million

California $6.9 billion

Colorado $253 million

Connecticut $498 million

Delaware $12 million

Florida $1.6 billion

Georgia $416 million

Idaho $202 million

Illinois $2.2 billion

Indiana $1.7 billion

Kansas $88 million

Kentucky $795 million

Maryland $133 million

Massachusetts $387 million

Michigan $3.9 billion

Minnesota $477 million

Missouri $722 million

Nevada $397 million

New Jersey $1.7 billion

New York $3.2 billion

North Carolina $2.1 billion

Ohio $2.3 billion

Pennsylvania $3.0 billion

Rhode Island $225 million

South Carolina $886 million

South Dakota $24 million

Tennessee $21 million

Texas $1.0 billion

Vermont $33 million

Virginia $ 346 million

Virgin Islands $13 million

Wisconsin $1.4 billion

Total $37.8 billion

Governor Orders Government Worker Furloughs in California

Gov. Schwarzenegger Orders Government Worker Furloughs

Even though California received almost $42 billion in federal aid from the stimulus package, the state faces a $19 billion budget hole

July 29, 2010

Associated Press - Gov. Arnold Schwarzenegger on Wednesday brought back furloughs for thousands of state workers until California passes a budget that addresses a $19 billion deficit.

Schwarzenegger released a new executive order requiring state workers to take three unpaid days off per month starting in August, forcing a number of state government offices closures. State workers were furloughed a total of 46 days when Schwarzenegger issued a similar order in February 2009, which translated to a pay cut of about 14 percent.

Those furloughs just ended in June.

It's unclear how long the latest round of furloughs could last, as Schwarzenegger and lawmakers enter the fifth week of the new fiscal year without a balanced budget. Earlier this week, the governor hinted that he might not sign a budget before he leaves office next January unless it includes pension, tax and spending reforms.

"Without a budget in place that addresses our $19 billion budget deficit, every day of delay brings California closer to a fiscal meltdown," Schwarzenegger said in a statement. "Our cash situation leaves me no choice but to once again furlough state workers until the Legislature produces a budget I can sign."

State Controller John Chiang has warned he will start issuing IOUs in August or September if the budget stalemate drags on in the Legislature. Chiang said the cash-saving measure is necessary because the state is projected to run out of cash in October.

As before, the public will be inconvenienced by the furloughs. Many state offices, including the Department of Motor Vehicles, will close on the second, third and fourth Fridays of the month. The first furlough is scheduled for Friday, Aug. 13.

The new order, however, exempts departments that collect revenue, such as the Franchise Tax Board, and provide public safety protection, including the California Highway Patrol. Those agencies will remain open along with the Employment Development Department, which processes unemployment claims.

It also exempts about 37,000 workers in six unions that recently reached tentative labor agreements with the administration. Those unions agreed for their members to contribute more of their salaries toward their pension benefits and to take one day of unpaid personal leave a month, the equivalent of a nearly 5 percent pay cut.

The latest furlough will affect about 156,000 of the state's 237,000 workers. The Schwarzenegger administration estimated it will achieve $80 million in general fund savings and nearly $150 million in overall savings per month.

The furlough puts pressure on remaining unions that have not agreed to the governor's demands for pension changes.

Schwarzenegger's last furlough order triggered more than two dozen lawsuits, but the administration said the furloughs achieved about $1 billion in general fund savings and $2.2 billion in overall savings during the state's last budget crisis.

Unions also have been fighting the governor's efforts to impose the federal minimum wage $7.25 per hour while the state operates without a budget.

"To once again force state employees to take unpaid furloughs is just another punitive measure by Gov. Schwarzenegger because he couldn't impose minimum wage," said Patty Velez, president of the California Association of Professional Scientists, which represents 3,000 state employees.

The state Assembly's Republican leader, Martin Garrick, said Democrats who control the Legislature were to blame because they have refused to make cuts that Republicans, including Schwarzenegger, have demanded.

"I believe they've brought it on themselves and their constituents -- and mine -- that have been furloughed, because they haven't made the reductions," Garrick said in a telephone interview. "The longer we go, the deeper the cuts have to be."

Democrats have vowed to protect education and social service programs, such as CalWORKS, the state's welfare-to-work program. They have proposed delaying corporate tax breaks and a new oil tax.

"It's shocking that every single one of the governor's budget moves deliberately hurt people," said Shannon Murphy, spokeswoman for Assembly Speaker John Perez.

Carolyn Schneider, an executive assistant for the California Air Resources Board, said the furloughs have already caused financial stress. She and her husband cut back on vacations and haven't been saving as much as they would like for college for their two children, ages 4 and 13.

But given the choice between a furlough and a permanent pay cut under the governor's plan, Schneider said,

"I'd rather have furloughs than the pay cut and still have to work."

55% Say Better for California to Go Bankrupt Than Be Bailed Out

January 4, 2010

Rasmussen Reports - California Governor Arnold Schwarzenegger reportedly intends to ask this week for a federal bailout to keep his state from going bankrupt. But most voters have never been fans of any kind of federal bailout, and most continue to oppose a bailout for California, even when told what specific budget cuts may be necessary.

A new Rasmussen Reports national telephone survey shows just 27% of voters nationwide believe the federal government should provide bailout funding for California. Fifty-five percent (55%) think the federal government should let the state go bankrupt instead. Seventeen percent (17%) are not sure.

No matter how you frame the choice for voters, bailing out California is unpopular.

Schwarzenegger himself has said that California may seek $8 billion in federal funding assistance. When we ask about that request without mentioning the trade-off of filing bankruptcy, only 16% of voters nationally favor the bailout. Sixty-eight percent (68%) oppose an $8-billion bailout for California, with another 16% undecided.

Without the federal bailout, Schwarzenegger has said California will have to cut back the state’s main welfare program and reduce health care services for the disabled and elderly. He also says a 14% cut in pay for state workers may be necessary.

Just 33% of voters nationwide favor a bailout to avoid these cuts on the state level. However, 53% say the state should cut back on welfare programs, health services and the state payroll. Fourteen percent (14%) aren’t sure.

When asked about what should be done if their own state ends up in a bind like California, 49% opt for cutting back on services, 28% say the state should raise taxes, and 9% say bankruptcy is the best course of action.

As is often the case, the divide is a huge divide between Mainstream America and the Political Class on these topics. Fifty-seven percent (57%) of the Political Class favor a federal bailout for California, while 68% of Mainstream voters say the state should go bankrupt instead.

Sixty-seven percent (67%) of male voters say it’s better to let California go bankrupt, a view shared by 45% of women.

Nearly two-thirds of both Republicans (66%) and voters not affiliated with either party (64%) say bankruptcy is the better option. Democrats are evenly divided on the question.

Voters have taken a dim view from the start of the bailouts proposed for General Motors and Chrysler and for the financial industry.

A plurality (38%) of voters nationwide say the $787-billion economic stimulus plan has hurt the economy.

The president has indicated that he hopes to use money still unspent from the stimulus plan to fight the nation’s 10% unemployment rate, and one of the ideas on the table is to channel money to states to keep them from laying off public employees. But a majority of voters oppose using the stimulus money for that purpose and also are against a second economic stimulus plan.

Fifty-one percent (51%) of voters say more jobs would be created if the remaining spending planned in the first stimulus plan was cancelled right away.

Just last month, 58% of all voters opposed giving federal bailout money to states like California with serious budget problems. Twenty-two percent (22%) thought it was a good idea. These findings remain largely consistent from a survey in May when California’s budget programs began grabbing headlines.

Michigan Senate GOP: Cut Public Workers’ Pay, Benefits

Even though Michigan received close to $13 billion in federal aid from the stimulus package, the state faces an almost $2 billion budget hole

January 20, 2010

The Associated Press - Senate Majority Leader Mike Bishop said Tuesday the pay of teachers, professors and state and local government workers should be cut by 5 percent and held at that level for the next three years to save money.

The Rochester Republican told reporters he is proposing a constitutional amendment to go to the voters in August that would suspend collective bargaining rights and allow the pay cut to take effect.

Another constitutional amendment would be needed to require that all public employees pay 20 percent of their health care premiums unless they participate in a health savings account or wellness program. If they did, they would have to cover 15 percent of their premiums.

It’s all part of a plan Bishop said would save up to $2 billion, enough to eliminate the estimated $1.6 billion deficit in next year’s budget. Both the pay cut and the higher premiums cost would affect lawmakers.

Democratic legislative leaders did not immediately respond Tuesday to requests for comment.

Other groups denounced the idea. Progress Michigan said in a statement that a study by Michigan State University economics professor Charles Ballard shows state workers already have saved the state $3.7 billion in reduced compensation and through other sacrifices, including furlough days.

It’s unclear if either measure could get the two-thirds vote needed in both the House and Senate by early June to get the measures on the Aug. 3 ballot. If lawmakers balked, the issues could go to voters through a ballot drive, but that would take time and money.

Bishop said he’s not trying to be mean-spirited, but wants to solve the money woes of public institutions, including state government, by decreasing costs rather than raising taxes.

“We cannot afford the government that we have today,” he said. “We’re asking that our public servants ... step up to the plate to be a part of the solution.”

Bishop also said he wants to cut Medicaid spending by $160 million to $500 million by either cutting services or reducing the number of people eligible for state-provided health care coverage.

He offered no specifics on where he wants to cut, but some of the optional Medicaid coverage Michigan provides pays the costs of seniors in nursing homes and for prescription drugs.

Bishop also wants to trim costs to school districts by requiring them to competitively bid out transportation, food and custodial services, which he said could save schools up to a half-billion dollars. He wants districts to keep administrative spending to 28 percent or less, which would force 211 districts to trim costs.

House and Senate Democrats announced earlier Tuesday that they would try again to end free, taxpayer-funded lifetime health care for state lawmakers starting at age 55 who serve at least six years and substitute a health care benefit more in line with what other workers receive.

“It is simply ridiculous that politicians in Lansing still get free health care for life after working only six years. This plan will put an end to that special treatment and require elected officials to share in the sacrifices that Michigan families are making during these tough times,” said state Rep. Dian Slavens of Wayne County’s Canton Township, one of the sponsors of the bills.

Maine $2 Billion in the Hole

MAINE’S FINANCIAL STATE OF THE STATE
WHAT DO WE OWE…
AND WHERE DO WE STAND?
As of June 30, 2009

	What We Own
	Capital Assets	$4,434,966,000
	Other Assets	$2,311,773,000
	OUR ASSETS	$6,746,739,000
	What We Owe
	Debt Related to Capital Assets	$570,404,000
	Pension Benefits Due	$3,994,115,000
	Retirees’ Health Care Benefits Due	$2,330,463,000
	State Bonds	$529,990,000
	Other Liabilities	$1,391,959,000
	OUR BILLS	$8,816,931,000
	Where We Stand
	Net Assets (Financial Position)	($2,070,192,000)

Climate Bills and a Green Economy

Senate Unveils Scaled-back Version of Climate Bill, Taking Advantage of the 'Crisis in the Gulf' by Focusing on Offshore Drilling Rather Than Carbon Emissions

July 27, 2010

Reuters - Senate Democrats unveiled a slimmed down bill on Tuesday aimed at reforming offshore drilling, as doubts grew that Congress would be able to pass any substantial energy legislation this year.

The Senate bill, which Democrats were still refining, would require oil companies to cover all oil spill costs by removing the $75 million cap on liability relating to economic losses.

The measure would apply retroactively to the April 20 BP oil well disaster in the Gulf of Mexico, which prompted the legislation.

Flashback: President Obama's decision, announced March 31, to approve new oil and gas drilling off U.S. coasts for the first time in decades reflects a high-stakes calculation by the White House: Splitting the difference on the most contentious energy issues could help secure a bipartisan climate deal this year. In what could represent the biggest expansion of offshore energy exploration in half a century, Obama announced that he will open the door to drilling off Virginia's coast, in other parts of the mid- and south Atlantic, in the eastern Gulf of Mexico, and in waters off Alaska. At the same time, he declared off-limits the waters off the West Coast and in Alaska's Bristol Bay, canceled four scheduled lease sales in Alaska and called for more study before allowing new lease sales in the Chukchi and Beaufort seas. - Juliet Eilperin and Anne E. Kornblut, President Obama Opens New Areas to Offshore Drilling, The Washington Post, April 1, 2010

Other provisions in the legislation would provide rebates for purchasing vehicles that run on alternative fuels and making existing homes more efficient, as well as incentives to promote electric vehicles.

The estimated $15 billion cost of the bill for clean energy initiatives would be paid for, according to Democratic aides, by raising the Oil Spill Liability Trust Fund fee. While a draft of the bill said the fee would rise to 49 cents per barrel of oil, from 8 cents, an aide said that figure was still being reviewed.

In remarks to reporters, Senate Majority Leader Harry Reid said he would bring the legislation to the floor in the coming days. But its fate was uncertain as Reid said he also wanted to pass at least two other bills before a month-long recess set to begin August 6.

Democratic aides would not say whether they will allow amendments to the measure. If not, Republicans might put up procedural roadblocks to quick passage.

Admitting last week they did not have the votes to pass broad climate change legislation, Senate Democrats opted to concentrate their efforts on passing a scaled back bill before the August recess.

"This bill does not address every issue of importance to our nation's energy challenges, and we have to continue to work to find bipartisan agreement on a comprehensive bill to help reduce pollution and deal with the very real threat that global warming poses," Reid said.

U.S. President Barack Obama on Tuesday restated his pledge to work for a bill combating global warming, but few believe there is time to achieve that this year.

"If we've learned anything from the tragedy in the Gulf, it's that our current energy policy is unsustainable," Obama told reporters after meeting with congressional leaders.

Obama's comments were likely seen as a nod to the international community and environmentalists, who are counting on U.S. action to help advance U.N. talks to form an international pact to curb greenhouse gas emissions.

But the White House indicated on Tuesday that climate provisions could be added back into a bill once negotiators from the Senate and the House of Representatives hammer out differences between their respective versions during "conference" talks.

Some green groups slammed the Senate's failure to include tough climate control provisions in the energy bill.

"There's no doubt that big oil, big coal, their army of lobbyists and their partners in Congress are cheering the obstruction that blocked Senate action on clean energy and climate legislation," a coalition of environmental groups, including the Sierra Club, said in statement.

In a separate statement, the Sierra Club emphasized it strongly supports other aspects of the bills Democratic leaders in the House and Senate are advancing "to respond to the BP disaster, reduce oil dependence and create clean energy jobs." It added it was "essential" Congress make further progress later this year on moving the U.S. off carbon-polluting oil consumption.

The main lobby for the oil industry called the Senate bill a job killer because of provisions to raise the liability cap for companies involved in oil spills.

"This would cut domestic production, kill American jobs, slow economic growth and cost billions in federal oil and natural gas revenues," the American Petroleum Institute said in a statement.

In the House of Representatives, Democrats are preparing to vote on a tough bill Friday that would clamp down on offshore oil and gas drillers.

In addition to eliminating the oil spill liability cap, the bill would impose tough new safety rules and ban BP from getting new offshore oil exploration leases for up to seven years for its role in the Gulf oil spill.

Any differences between the House and Senate bills would have to be reconciled, which could prove difficult with the looming August recess and November elections.

Some Republicans fear that Democrats could use a possible post-election session to ram an energy and climate control bill through Congress.

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Obama Says will Keep Pushing for Climate Bill

July 27, 2010

Reuters - President Barack Obama pledged on Tuesday to keep pushing for legislation to fight climate change despite a move in the U.S. Senate to focus energy reform more narrowly on offshore drilling.

Senate Democrats unveiled a bill on Tuesday that omits setting caps on carbon emissions -- the key element of a more comprehensive energy and climate bill that failed to gain sufficient support in the Senate.

The Senate bill would require oil companies to cover all oil spill costs by removing the $75 million cap on liability, and provide rebates for purchasing vehicles that run on alternative fuels and making existing homes more efficient.

Obama said it was "an important step in the right direction" but it was not enough.

"I want to emphasize it's only the first step and I intend to keep pushing for broader reform, including climate legislation," he told reporters in the White House Rose Garden after meeting with congressional leaders.

Obama, who spoke before details of the Senate proposal were disclosed, did not set out a timetable for a future climate push and it is very unlikely that any legislation on the subject will be passed this year.

If likely Republican gains in November elections change the balance of power in Congress, climate change legislation would face an even more uncertain future.

With that in mind, the White House indicated on Tuesday that climate provisions could be added back into a bill once negotiators from the Senate and the House of Representatives hammer out differences between their respective versions during "conference" talks.

The House bill, passed last year, includes climate provisions to cut greenhouse gas emissions.

White House spokesman Robert Gibbs, when asked whether the administration would seek to do a separate climate bill later after getting a narrow energy-focused bill first, said:

"No, I think the process is you get an energy bill through the Senate then you can conference that legislation with the House."

Gibbs said that process could happen in September.

Obama's comments were likely meant as a nod to the international community and environmentalists, who are counting on U.S. action to help advance U.N. talks to form an international pact to curb greenhouse gas emissions and fight global warming.

Obama said climate change legislation would create high-wage U.S. jobs in the renewable energy sector.

"We can't afford to stand by as our dependence on foreign oil deepens, as we keep on pumping out the deadly pollutants that threaten our air and our water and the lives and livelihoods of our people," he said.

Oil Spill in the Gulf & Other Places

Massive Oil Spill Threatens Lake Michigan

Pipeline spilled more than one million gallons of oil into Michigan's Kalamazoo River before leak was stopped; oil expected to reach Lake Michigan some 80 miles away

July 29, 2010

Associated Press – Federal officials believe an oil spill that has contaminated a major Michigan river was larger than first estimated, and the governor is warning of a "tragedy of historic proportions" should the oil reach Lake Michigan some 80 miles away, and the vacation communities that depend on it.

The Environmental Protection Agency, which has taken control of efforts to contain and clean up the Kalamazoo River spill, said late Wednesday that it believes more than 1 million gallons of oil leaked from a pipeline into Talmadge Creek, which feeds the river. Enbridge Inc., the Canadian company that oversees the pipeline, had estimated that 819,000 gallons spilled Monday before they could stop the leak.

By late Wednesday, the oil had traveled at least 35 miles downstream from where it leaked in Calhoun County's Marshall Township, killing fish, coating other wildlife and emitting a strong, unpleasant odor. It had passed through Battle Creek, a city of 52,000 residents about 110 miles west of Detroit, and was headed toward Morrow Lake, a key point near a Superfund site upstream of Kalamazoo, the largest city in the region.

State and company officials had said earlier this week they didn't believe the oil would spread past a dam at the lake, and that they would be able to contain it there.

But Tom Sands, the deputy state director for emergency management and homeland security, said during a conference call with Granholm on Wednesday that he had seen oil that had made it past the dam while he was flying over the area.

On Thursday, EPA spokesman Mick Hans said its incident commander was in the same plane as Sands and wasn't convinced oil had passed the dam. Hans said the EPA, however, wasn't trying to take issue with the report.

Click here to see photos of Kalamazoo River oil spill

The company's latest update statement Wednesday said oil was about seven miles short of the opening to Morrow Lake.

Granholm on Wednesday called on the federal government for more help, saying resources being marshaled by the EPA and Enbridge were "wholly inadequate."

The Calgary, Alberta-based company said Wednesday and Thursday that it was ramping up its efforts to contain and clean up the mess. Chief executive Patrick D. Daniel said the company had made "significant progress," though he had no update on a possible cause, cost or timeframe for the cleanup.

Workers and contractors were using vacuum trucks and absorbent booms to contain and clean the spill, and the company was bringing in more help, Enbridge spokeswoman Lorraine Grymala said Thursday.

"We're getting them here as quickly as we can," Grymala said.

The overall work force on the spill Wednesday was likely more than 400 people. EPA officials said they're ramping up efforts with air and water testing. Local officials said they weren't concerned about municipal water supplies.

The spill has killed fish and coated wildlife. Both company and EPA officials have said oil is no longer leaking, but the spill's size was considerable. An 800,000 gallon spill would be enough to fill 1-gallon jugs lined side by side for nearly 70 miles. It also could fill a walled-in football field, including the end zones, with just under 2 feet of oil.

Granholm has declared a state of disaster for some areas along the river, and President Barack Obama called Granholm to offer federal support.

Anil Kulkarni, a mechanical engineering professor at Penn State University, said a quick response was vital to the river's ecology. Snails, frogs, muskrats and even birds eat, live and nest on or near the riverbank.

"The river banks are nearby. It has more potential to inflict damage because of the proximity to land. Anything that comes in contact with oil is going to be affected badly. It prevents the natural life of species, whether it's collecting food or anything else."

Enbridge-related companies have been cited several times in recent years for violations in the Great Lakes region.

Houston-based Enbridge Energy Co., spilled almost 19,000 gallons of crude oil onto Wisconsin's Nemadji River in 2003. Another 189,000 gallons of oil spilled at the company's terminal two miles from Lake Superior, though most was contained.

In 2007, two spills released about 200,000 gallons of crude in northern Wisconsin as Enbridge was expanding a 320-mile pipeline. The company also was accused of violating Wisconsin permits designed to protect water quality during work in and around wetlands, rivers and streams, the Wisconsin Department of Natural Resources said. The violations came during construction of a 321-mile, $2 billion oil pipeline across that state. Enbridge agreed to pay $1.1 million in 2009.

The Michigan leak came from a 30-inch pipeline, which was built in 1969 and carries about 8 million gallons of oil daily from Griffith, Ind., to Sarnia, Ontario.

An 80-mile segment of the river that begins at Morrow Lake and five miles of a tributary, Portage Creek, have unsafe levels of PCBs and were placed on the federal Superfund list of high-priority hazardous waste sites in 1990. The Kalamazoo site also includes four landfills and several defunct paper mills.

Oil spill near Kalamazoo River causes stench, mess
Pipeline Leaks, Over 800,000 Gallons of Oil Spew in Michigan
Experts say it's too soon to know environmental impact of oil spill
Experts: Oil spill will have lasting effects
Enbridge doubles cleanup effort for Michigan oil spill
Company, authorities work to keep Enbridge oil spill out of Lake Michigan
Enbridge warned of corrosion in Michigan pipeline weeks before spill

Crews Work to Cap New Louisiana Oil Leak Near Gulf

July 28, 2010

Associated Press – A parish councilman in Louisiana says the oil, gas and water spewing from an abandoned well north of Barataria Bay will soon be stopped if all goes well.

Jefferson Parish Councilman Chris Roberts says the well not far from the Gulf of Mexico could be shut off by noon Wednesday.

A wild well company is working on the spewing wellhead that was hit by a barge in a coastal inlet early Tuesday.

About 6,000 feet of containment boom is in place around the site. Authorities say the mile-long slick from the latest leak is small compared with BP's massive Gulf spill.

The Coast Guard says a towboat was pushing the barge on Mud Lake when it hit the wellhead. The Coast Guard says the towboat captain told investigators the well was not lit as required.

Click here to see more photos of spewing wellhead

Update 8/2/10: Leaking Barataria Bay oil well capped after 10 days

Bankrupting the Common People

Foreclosures Up in 75 Percent of Top U.S. Metro Areas

July 29, 2010

Reuters – Foreclosures rose in three of every four large U.S. metro areas in this year's first half, likely ruling out sustained home price gains until 2013, real estate data company RealtyTrac said on Thursday.

Unemployment was the main culprit driving foreclosure actions on more than 1.6 million properties, the company said.

"We're not going to see meaningful, sustainable home price appreciation while we're seeing 75 percent of the markets have increases in foreclosures," RealtyTrac senior vice president Rick Sharga said in an interview.

Foreclosure actions -- which include notice of default, scheduled auction and repossession -- in the first half rose in 154 of the 206 metro areas with populations 200,000 or more.

"We're not going to see real price appreciation probably until 2013," said Sharga. "We don't see a double dip in housing but we think it's going to be a long painful recovery for the next three years."

Nine of the 10 areas slammed hardest by the foreclosure tidal wave improved from the first half of 2009, suggesting a peak at rates that are still up to five times the national average, RealtyTrac said in its midyear 2010 metropolitan foreclosure report.

Cities with the 20 highest foreclosure rates were all in Florida, California, Nevada and Arizona.

As long as unemployment hovers near 10 percent and unrelenting foreclosures hang over the market, prices cannot stage a lasting comeback. Home prices are about 29 percent lower, on average, than peaks set four years ago.

"If unemployment remains persistently high and foreclosure prevention efforts only delay the inevitable, then we could continue to see increased foreclosure activity and a corresponding weakness in home prices in many metro areas," RealtyTrac chief executive James J. Saccacio said in a statement.

Home prices rose in May for the second month, still propped up by the crush of demand for homebuyer tax credits that ended April 30, according to Standard & Poor's/Case-Shiller indexes.

But that momentum will not last, economists agree.

Unemployment and wage cuts are chipping away at confidence and could slice average prices as much as 10 percent before a gradual climb resumes, many housing experts predict.

Sharga said the recent nominal price increases suggest that lenders so far have managed the distressed property flow well and buyers are bidding for those houses when they do get listed for sale.

Banks will take over at least a record 1 million mortgages this year, RealtyTrac estimated earlier this month, noting that more than 5 million loans are seriously delinquent and face foreclosure.

More than 3 million households are seen getting at least one foreclosure notice this year, and this record will be surpassed slightly at the peak of next year, RealtryTrac expects.

Las Vegas had the country's highest metro foreclosure rate in the first half of the year, with 6.6 percent of its housing units, or one in 15, getting a filing. The number of properties getting a notice, however, fell 9 percent from the same period last year.

Foreclosure Activity Rises in Most U.S. Metropolitan Areas

July 29, 2010

Associated Press - Households across a majority of large U.S. cities received more foreclosure warnings in the first six months of this year than in the first half of 2009, new data shows.

The trend is the latest sign that the nation's foreclosure crisis is worsening as homeowners battling high unemployment, slow job growth and an uneven rebound in home prices continue to fall behind on their mortgage payments.

In all, 154 out of 206 metropolitan areas with at least 200,000 residents posted an annual increase in foreclosure activity between January and June, foreclosure listing firm RealtyTrac Inc. said Thursday.

The firm tracks notices for defaults, scheduled home auctions and home repossessions -- warnings that can lead up to a home eventually being lost to foreclosure.

The latest figures show the threat of foreclosures is spreading well beyond the top tier of metropolitan areas located in California, Florida, Nevada and Arizona, which have borne the brunt of the fallout from the housing crisis.

Those states saw housing values surge during the housing boom years. When the boom ended, values collapsed and foreclosures soared.

"The face of foreclosure is driven much more now by unemployment than in the past, and it's moving out from the places where we've been focusing on in the last few years," said Rick Sharga, a senior vice president at RealtyTrac. "The combination of a weak job market and a weak housing market is making it difficult in some of these areas."

The Miami-Fort Lauderdale-Pompano Beach metropolitan area in Florida received more foreclosure-related warnings in the first half of this year than any other, the firm said.

Florida accounted for nine of the top 20 metro areas with the highest foreclosure rates.

The latest data echo broader, national foreclosure trends.

The number of households facing foreclosure in the first half of the year climbed 8 percent versus the same period last year, but dropped 5 percent from the last six months of 2009, RealtyTrac said in a report issued earlier this month.

In all, about 1.7 million homeowners received a foreclosure-related warning between January and June. That translates to one in 78 U.S. homes.

More than 1 million American households are likely to lose their homes to foreclosure this year, the firm said.

The latest data included one bright spot: Nine of the top 10, hardest-hit metropolitan areas saw their foreclosure rates drop from a year ago. That could suggest foreclosure trends in those cities, including Las Vegas, Cape Coral, Fla., and Modesto, Calif., may have peaked.

"We probably won't know that for sure for another six months," Sharga said.

Still, those areas continue to see foreclosure rates that are as much as five times higher than the national average.

The top 10 metropolitan areas with the highest foreclosure rates has remained fairly unchanged over the past 12 months.

The Las Vegas-Paradise, Nev., metropolitan area topped the list with one in every 15 homes receiving a foreclosure warning in the first half of the year -- five times the national average. But foreclosure filings declined nearly 9 percent versus the first six months of 2009.

Rounding out the rest of the top 10 metros with the highest foreclosure rate in the first half of 2010 were Cape Coral-Fort Myers; Modesto; Merced, Calif.; Riverside-San Bernardino-Ontario, Calif.; Stockton, Calif.; Phoenix-Mesa-Scottsdale, Ariz.; Orlando-Kissimmee, Fla.; Vallejo-Fairfield, Calif.; and Miami-Fort Lauderdale-Pompano Beach, Fla.

The Miami-area metro was the only one among the top 10 to register an annual increase in its foreclosure rate.