State Net Capitol Journal – March 5th, 2012

State Net Capitol Journal – March 5th, 2012

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Budget & Taxes

STATES DIVERTING FORECLOSURE SETTLEMENT MONEY: Last month, the nation's five largest mortgage lenders signed a $25 billion settlement with the attorneys general of 49 states addressing loan servicing abuses that contributed to the foreclosure crisis. But even before the ink was dry on that agreement, Missouri Gov. Jay Nixon (D) announced his state would use part of its share of the settlement money to fund higher education. Similar plans are being discussed in several other states struggling with budget shortfalls, including Pennsylvania, Vermont, Maryland and Wisconsin.

Although under the terms of the settlement, the bulk of the $25 billion will go directly to homeowners hurt by the mortgage crisis, $2.7 billion was set aside for states to use as they wish. But some consumer advocates say using any of the money for anything other than foreclosure relief is wrong.

"We shouldn't be in the position of taking money that is intended to help consumers and their mortgage tribulations and putting that to another purpose," said Joan Bray, a former Missouri state senator who is now the chairwoman of the Consumers Council of Missouri.

Some think that is particularly true given the amount of the settlement.

"As insufficient as it is," said Kathleen Day, spokeswoman for the Center for Responsible Lending, "this money was intended to go directly to help struggling homeowners."

The fear for some consumer advocates is that the same thing will happen with the foreclosure agreement as has happened with the 1998 multistate tobacco settlement. When that deal was reached, states initially said they would use the $206 billion that would come from it to curb tobacco use and improve public health, but funding for tobacco-prevention programs has fallen off considerably.

Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, the lead negotiator on the foreclosure settlement, however, said officials "have to acknowledge that there has been damage done to states and their budgets and their services because of this mortgage crisis.... So states will have some flexibility in how they spend" the settlement money. (ASSOCIATED PRESS, STATELINE.ORG, NATIONAL ASSOCIATION OF ATTORNEYS GENERAL, STATE NET)

Foreclosure of House For Sale

BUDGET FALLS VICTIM TO POWER STRUGGLE IN VA SENATE: Budget stalemates are hardly unheard of in Virginia. But the state entered uncharted territory last week, when Senate Democrats rejected the chamber's last active budget bill for the two-year budget cycle that starts July 1, leaving lawmakers with no spending plan to negotiate on.

"This is unprecedented, and it is unacceptable," Gov. Robert McDonnell (R). "It is not the Virginia way."

McDonnell and Republican lawmakers blame the situation on the Democrats, who they say are seeking more power in the Senate, which was split 20-20 between the two parties after the November election but which the GOP now controls because of the effective majority Lt. Gov. Bill Bolling's (R) tiebreaking vote gives them.

Democrats say their opposition to the budget is about more than just politics. Among other things, they say the budget doesn't provide enough funding for public schools and health and human services.

"The budget does not adequately address the needs of our children, the elderly, and the poor," said Sen. Mamie Locke (D).

But Senate Republicans say they tried to appease Democrats by agreeing to increase funding for education and reverse cuts to social services programs. And Senate Majority Leader Tommy Norment (R), who has accused Democrats of attempting to "bend over the entire commonwealth of Virginia and disrupt the major policy decision over just raw, brutalized political will," said a power-sharing deal is "not happening" while he is in charge. (VIRGINIAN-PILOT [NORFOLK])

NY BORROWING FROM PETER TO PAY PETER: The state government of New York and municipalities statewide are borrowing $750 million this year, and probably over $1 billion next year, to pay their contributions to the state pension system. That governments are struggling to meet their pension obligations is no great surprise. But the source they are borrowing from is: the pension system itself.

A borrowing mechanism approved in 2010 under the administration of former Gov. David A. Paterson (D) and supported by public sector unions and the state comptroller's office, which oversees the pension system, allows public employers to make lower payments now in exchange for making higher payments later.

Supporters say the plan is helping governments make it through a difficult time. But critics say it is simply kicking the state's pension problems down the road.

"You're undermining the long-term solvency of these funds and making the pension fund even more of a gamble than it already is," said Josh Barro, a senior fellow at the conservative Manhattan Institute.

Barro said the state is betting the performance of its pension investments will improve over the next decade and bail out the system.

"If performance continues to be weak, then contribution rates will be even higher than the rates we're trying to avoid now, and you'll produce even more fiscal pain down the road," he said. (NEW YORK TIMES)

BUDGETS IN BRIEF: Officials in Stockton, CALIFORNIA, a city of 290,000 near San Francisco, voted last week to enter into the 90-day mediation process established under a new state law designed to make it more difficult for municipalities to declare Chapter 9 bankruptcy. If mediation fails, the city will become the largest in America to go bankrupt (NEW YORK TIMES, STATELINE.ORG). • In brighter news, CALIFORNA'S top budget analyst reported last week that Facebook's eagerly anticipated IPO could pump nearly $2.5 billion into the state's coffers over the next five years (LOS ANGELES TIMES). • PENNSYLVANIA's Department of General Services has raised $700,000 since 2004 from selling contraband seized by the federal Transportation Security Administration at airports, including New York City's John F. Kennedy and LaGuardia. The most sought-after items have been pocket knives, scissors and corkscrews, which the state usually sells in boxes of 100 (USA TODAY). • NEBRASKA Governor Dave Heineman (R) has proposed lowering the rate and raising the income threshold for every state tax bracket. He also wants to cut the state's corporate income tax and do away with the inheritance tax (STATELINE.ORG). • NEW JERSEY Gov. Chris Christie (R) proposed a $32 billion budget last month that includes about $2 billion of additional spending in several areas, including education (STAR-LEDGER [NEWARK]). • ALABAMA plans to shut down all but two of its mental health hospitals by the spring of 2013 to cut costs and change how the state treats psychiatric patients, state officials announced last month. The state has closed 10 mental health treatment centers since the 1990s and relocated patients to small group homes and private hospitals, which mental health advocates believe often provide patients better care (NEW YORK TIMES). • ILLINOIS is implementing new Medicaid enrollment restrictions, including electronic cross-checks on residency and income expected to cut thousands of current beneficiaries from the program and save more than $1 million, without federal approval. The state has been debating the changes with federal officials for nearly a year (STATELINE.ORG).

- Compiled by KOREY CLARK

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