Capitol Comments

Official: NAFTA Has Boosted Trade, Commerce, Travel

Don’t be afraid of the North American Free Trade Agreement, a U.S. Department of State official said Sunday. 

Despite some critics, NAFTA has added jobs and dramatically increased relations between the U.S., Canada and Mexico, according to John Dickson, director of the Office of Public Diplomacy Bureau of Western Hemisphere for the State Department. Dickson delivered the keynote speech, called The Case for North American: NAFTA and Beyond, during Sunday’s luncheon.

NAFTA, which went into effect in 1994, has since helped boost trade, commerce and travel between Mexico, the U.S. and Canada, Dickson said.

Paving the Road to Prosperity

By Sujit M. CanagaRetna

In stark contrast to the difficult fiscal positions states such as Michigan and Ohio face—primarily as a result of the decreasing automobile sector there—the auto industry continues to flourish in the South, generating billions of dollars in economic impact and creating thousands of direct and indirect jobs.

The auto industry’s drive to move South is paving the road for prosperity in the region, even while the U.S. economy inches toward recession.

The auto industry continues to prosper and play a dominant role in the economic calculations of the South with the advancement of several foreign automakers at a time when the industry’s domestic Big Three—Chrysler, Ford and General Motors— face wrenching problems.

As the U.S. economy experiences a great deal of tumult with a serious slowdown in growth, the automobile industry in general and the industry in the South in particular, have received an additional boost from the depreciating U.S. dollar—increasing auto exports of autos and other goods. As a result, the industry’s drive to move South continues, unabated and with renewed
vigor. 

Read more of the article in State News magazine.

Budget Woes: Governors Freeze Hiring, Propose Sales Tax Hikes

In a memo to state agency directors Monday, Washington Gov. Christine Gregoire ordered a state hiring freeze and spending cuts—all intended to trim around $90 million from the current budget, according to The Seattle Times. 

The newspaper quotes the governor in the memo as saying “a weakening national economy has affected us. The skyrocketing costs for groceries and the high price of fuel are being felt by all Washingtonians.”

The governor is asking state agencies to refrain from nonemergency hiring, out-of-state travel, discretionary purchases of new equipment and personal-services contracts, according to The Seattle Times.

Washington isn’t the only state feeling the crunch of the economic downturn and budgetary pangs.

Ensuring Affordability of Higher Education

By Mary Branham Dusenberry

The cost of higher education across the country is skyrocketing. Tuition is increasing at a much faster pace than family income, and states are working to ensure higher education doesn’t become out of reach for the neediest students.

While states are strapped for funding in these tough economic times, some experts in higher education financing say there are ways to ensure tuition increases don’t get out of control.

Former Kentucky Gov. Paul Patton, who was recently appointed to the state’s Council on Postsecondary Education, said states should ensure universities are operating at high levels of efficiency. “If your institutions are running reasonably efficiently, if you cut funding, you’re going to cut quality or quantity,” he said.

California Helps First-Timers Buy Foreclosure Properties

California is helping first time homebuyers buy foreclosed properties—at a bargain.

The California Housing Finance Agency received $200 million to use for a program that offers below-market-rate loans for first time homebuyers in the state, according to The San Francisco Chronicle.  The special project is called the Community Stabilization Home Loan Program, and according to the newspaper, it will help an estimated 800 to 1,000 Californians purchase their first home.

The program was announced by Gov. Arnold Schwarzenegger Monday as an effort to help first time homebuyers in areas hit hardest by foreclosures.

“We have taken a number of actions to help prevent foreclosures, but we also want to address the many already-foreclosed-on homes that sit vacant in our neighborhoods today,” Schwarzenegger said in a press release on the program. “This program will not only make it easier for families to purchase their first home, but will also help stabilize neighborhoods that have homes sitting empty.  No one single effort can solve our nationwide housing crisis, but together these measures make an important difference in California's neighborhoods.”

Economy Not Good, But Not Quite as Bad Either

By Mikel Chavers

Economist Todd Buchholz thinks things aren’t quite as bad as we think when it comes to the economy. No cause for celebration, for sure, but not as doom and gloom as some of the media headlines scream.

As a former director of economic policy for the White House from 1989 to 1992, he says today’s recession just isn’t as bad as some the U.S. has experienced in the past.

“Things are stagnant but we are certainly not falling off a cliff like in the ’82 recession and certainly not like the Great Depression,” Buchholz told an audience of Southern legislators Saturday at the Southern Legislative Conference’s Annual Meeting in Oklahoma City. “As long as the paychecks go out, we won’t fall off a cliff.”

In the last recession of 2000 and 2001, the Federal Reserve hiked rates too much, OPEC tightened the noose and the value of the Euro fell too far, Buchholz said.

Actuaries Gain More Attention in States

States have set aside about $2 trillion to meet long-term obligations for retiring public employees over the next three decades.

But that’s still about $731 billion short of what is needed to fund the promised $2.73 trillion in pension, health care and other retirement benefits, according to a Pew Center on the States report, Promises with a Price.

That shortfall and the new rule of the Government Accounting Standards Board that requires states to disclose the cost of nonpension benefits, such as health care, has drawn new attention to acturaries in the states. The Council of State Governments’ Southern Legislative Conference in June published an Issue Alert about the importance of actuarial estimates in public pension programs.

Because actuaries play a critical role in estimating the financial health of pension plans, they are now gaining more attention in discussions by public policymakers. Several states have taken action with regard to actuaries. In Texas, for instance, the attorney general is calling for actuaries operating in the state to be registered to ensure tighter oversight and regulation.

Illinois Attorney General Sues Countrywide Financial

Illinois Attorney General Lisa Madigan is suing the troubled mortgage lender Countrywide Financial, saying the company and its executives defrauded borrowers in the state.

The lawsuit, which is expected to be filed today, accuses Countrywide and chief executive Angelo R. Mozilo of selling borrowers costly loans that quickly went into foreclosure.

The civil lawsuit seeks unspecified monetary damages and asks the court to require Country to rescind or reform all the questionable loans it sold from 2004 to now. Madigan also asked that Mozilo contribute personally to the damages and that the court give her office 90 days to review loans serviced by Countrywide that were in foreclosure or soon would be.

The complaint, detailed in the New York Times, comes after review of 111,000 pages of Countrywide documents and interviews with former employees.

Panel Discusses State Transportation, Bond Insurance Industry Issues

The Financial Services Working Group will feature panel discussions on two critical and timely issues that impact state government budgets.

The first panel will discuss public-private partnerships in transportation. Some states either have leased, or are considering leasing, major state-owned assets for one-time windfalls that have the potential to reap billions of dollars. Highway leases loom large in these state calculations, and during this session three experts will discuss the fiscal pros and cons and what lessons can be learned from this trend.

Sujit CanagaRetna, a fiscal policy analyst in The Council of State Governments’ Southern office, said several states are pursuing public-private partnerships in transportation. Those deals range from a $12.8 billion lease pending legislative approval that would allow a Spanish consortium to operate the Pennsylvania Turnpike to the $4 billion Indiana Tollway lease by a Spanish/Australian consortium to fund a 10-year road construction fund.

States Can Tax Municipal Bonds

The U.S. Supreme Court today ruled states can tax interest on municipal bonds issued out of state.

By a 7-2 vote, the court reversed a Kentucky Court of Appeals ruling that Kentucky's tax policy violated the dormant Commerce Clause of the U.S. Constitution.

The high court ruled the Constitution lets states exempt interest earned on in-state bonds while taxing the income from bonds issued elsewhere. The decision preserves tax rules in 42 states, including New York and California.

The National Association of State Treasurers, an affiliate of The Council of State Governments, represented states' interests in the case by filing an amicus -- or friend of the court -- brief in January 2007, asking the court to grant Kentucky's petition for review of the case.

A ruling against Kentucky might have transformed the industry.  States would have faced billions of dollars in refund claims and been forced to either eliminate the tax breaks or extend them to out-of-state bonds. Such a ruling also would have undermined the appeal of the hundreds of single-state bond funds, which held $155 billion as of 2006.

Read more about the ruling at Bloomberg.com.