Tom Sgouros: Tom’s Tidbits
Saturday, July 23, 2011
Looming budget deadline
It seems there are still people who can view a possible failure to raise the debt ceiling with equanimity. The current theory that seems to be floating around press appearances by Republican representatives is that we can just pay the service on our debts, all the Social Security checks, Medicare, military pay, and veterans benefits. This would leave 40% of the federal government closed, which presumably includes federal prisons, air traffic control, border control, and the Coast Guard. I don't know about you, but I suspect this means that it's not possible to pay all those checks. After all, I think prisons and air traffic control count as essential expenses, though perhaps you'd disagree.
It's also worth noting that a bit more than a third of our state budget is made up of federal funds. This is around $250 million every month. Losing this money would likely mean stopping construction of all new road and bridge projects, as well as defaulting on the Medicaid payments that virtually all the nursing homes in our state depend on, at a little more than $30 million per month, about two-thirds of which is federal dollars. Hospitals rely on it, too, to the tune of $20 million per month. State aid to cities and towns, mostly aid to schools, is about $80 million per month.
The deficit that brought us so much anguish and so many bad decisions over the past year was less than two months at this cost. You can draw your own conclusions about how the state will deal with a loss of $250 million per month.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTBrinkmanship
Speaking of brinkmanship, Central Falls remains the problem with no solution. I'll write more about this in coming weeks, but it continues to baffle me that the state is willing to toy with the credit rating of the other 38 Rhode Island cities and towns in order to extract concessions from Central Falls unions and retirees. The vast majority of the people the receiver is extracting money from did not cause the problem with their city, but no one in the state hierarchy seems interested in them or their problems. Instead, we are embarked on a course where Central Falls's problems are for Central Falls to solve alone. Except they no longer have control of their budget.
So we have a state-appointed receiver in charge who is charging the city a phenomenal amount of money in order to cut services and slash pensions. And yet no long-term solution has yet been proposed aside from some half-baked comments about joining services with the neighboring towns, all of which have their own budget problems. The receiver is using the threat of bankruptcy to extract his concessions and I suspect he's temporarily happy to have been neglected by the Governor and Assembly.
I suppose that's the definition of hardball, but the sad fact is that the problems of Central Falls belong to all of us. If a risk of default becomes credible, the borrowing costs for all the towns in the state will rise dramatically. Since the current fashion is for towns to allow themselves to become completely dependent on the bond market, this will have serious consequences for town finances when interest rates rise. You may be cheering on the hard bargaining with Central Falls retirees on display this week, but will you still be cheering when your town's debt service costs double?
When is foreign not foreign?
Senator Carl Levin's (D-MI) office estimates the cost of offshore tax evasion by US corporations at $100 billion per year. This is money earned by corporations who have managed to keep the money out of the US, often by depositing it in US banks who have foreign branches. BankAmerica, for example, has branches across Asia.
US banks can own foreign banks, and it's all one big multi-national world, so perhaps this isn't so worrisome. But what I find particularly galling is the branches big banks maintain in places like the Cayman Islands and the Bahamas. These "branches" usually consist of little more than a file in some attorney's office on the island. The actual banking done by that branch is done right here at home, under rules that allow the bank to pretend that the activity is being done "overseas."
Governor Sundlun
I mourn Governor Sundlun’s passing and will have a longer appreciation of his legacy on Monday
Tom Sgouros is the editor of the Rhode Island Policy Reporter, at whatcheer.net and the author of "Ten Things You Don't Know About Rhode Island." Contact him at [email protected].
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