Tax Law

State Net Capitol Journal – October 14, 2013; Mortgage Settlement Money Used To Balance State Budgets

Budget & Taxes

MORTGAGE SETTLEMENT MONEY USED TO BALANCE STATE BUDGETS: As part of their settlement last year with major mortgage lenders over the lenders' use of improper mortgage practices contributing to the foreclosure crisis, states received $2.5 billion. But the states have found uses for at least $1 billion of that money other than helping struggling homeowners.

According to the National Conference of State Legislatures, Texas put nearly all of its $135 million share of the settlement into its general fund, which it spent largely on non-housing-related expenses. Arizona used more than half of its $98 million share to balance its budget. And Georgia set aside its entire $99 million share for economic development.

Some states, NCSL said, did use the money for housing-related programs. For instance, Connecticut used $22 million of its $26 million share for emergency mortgage assistance. Colorado spent about half of its $50 million share to help homeowners modify their loans and the rest on counseling and legal services. And Pennsylvania allocated 90 percent of its $67 million share to its housing finance agency.

But Iowa Attorney General Tom Miller, who led the joint state-federal investigation of the banks' mortgage practices, said state lawmakers were free to do whatever they wanted with the money.

"If policymakers in a particular state decided that the foreclosure crisis caused significant damage to their economy, one could make the case that that state should be able to use some of the settlement money to address that harm," he said.

He also pointed out that most of the money from the settlement — $51 billion — had gone directly to borrowers and not to the states.

"Let's not lose perspective on the overall settlement amounts," he said. "That's a truly astounding number." (STATELINE.ORG, NATIONAL CONFERENCE OF STATE LEGISLATURES)

SMALL BUT SIGNIFICANT MOVEMENT ON FEDERAL BUDGET STALEMATE: Last Thursday morning, 10 days into the first federal government shutdown in 17 years, House Republican leaders announced they would agree to a short-term increase in the federal debt ceiling in exchange for formal negotiations with President Obama on longer-term "pressing problems."

In a news conference after a closed-door meeting with House Republicans, Speaker John A. Boehner (R-Ohio), standing behind a lectern labeled with the Twitter hashtag #time4solutions, described the offer as a "good-faith effort on our part to move halfway to what [President Obama has] demanded in order to have these conversations begin."

The deal would reportedly raise the federal borrowing limit for six weeks, averting the federal default looming on Oct. 17, when the federal government runs out of money to pay its bills, potentially sending the U.S. economy back into recession. But the offer would bar Treasury Secretary Jack Lew from using "extraordinary measures" to extend the federal government's borrowing authority for weeks after the ceiling was reached, creating what financial analysts refer to as a hard "X date" that allows no wiggle room beyond that day. It would also not reopen the federal government until Obama agreed to "structural reforms" of the tax code and the Affordable Care Act.

"We're looking for a structure that puts us on a path to get a budget, to take care of the debt," said House Majority Whip Kevin McCarthy (R-California).

According to senior GOP advisers, the offer of a temporary increase in the debt limit was aimed primarily at soothing the jittery financial markets. And markets soared Thursday on the first optimistic news out of Washington in nearly a month, with the Dow Jones industrial average rising more than 225 points.

The White House also welcomed the news, with Press Secretary Jay Carney saying, "It's an encouraging sign...that [Republicans aren't] listening to the default deniers."

"Cooler heads seem to be prevailing," he said.

But he wouldn't say whether the president would agree to a deal that didn't reopen the government.

"You're asking me hypotheticals," he said.

It also wasn't clear whether Boehner would be able to get his own caucus to agree to the deal.

"I'm not very enthusiastic," Rep. Steve King (R-Iowa), one of the House's most conservative members, said of the offer.

Senate Majority Leader Harry M. Reid (D-Nevada), meanwhile, didn't seem too amenable to the deal either. When asked about the prospect of negotiating with Republicans before the federal government was reopened, he said: "Not going to happen." (ASSOCIATED PRESS, YAHOO NEWS, WASHINGTON POST, NATIONAL PUBLIC RADIO, STATE NET)

BUDGETS IN BRIEF: A report presented to the FLORIDA Senate Gambling Committee last week by Spectrum Gaming Group, a New Jersey-based research firm, concluded that due to saturation of the market in the state, "the expansion of casino gambling, whether on a small scale or very large scale, would have, at best, a moderately positive impact on the state economy." The report was intended to help lawmakers decide whether to allow jai alai frontons and dog racetracks outside South Florida to install slot machines and casino companies to build "destination resorts" in the state (MIAMI HERALD). • MAINE Gov. Paul LePage (R) declared a state of "civil emergency" last week to try to minimize the financial impact of the federal government shutdown on state operations. The proclamation gives LePage the authority to sidestep state laws or rules that "prevent, hinder and delay effective management of the emergency" (BANGOR DAILY NEWS, STATE NET)

- Compiled by KOREY CLARK

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