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State, local spending at lowest point since ’80s

By Dennis Cauchon, USA TODAY

State and local governments are keeping the tightest lid on spending in three decades, even though tax revenue is rising again and powerful interest groups are asking for more money.

The tight budget controls represent a sharp reversal from several years ago when states struggled to control spending, despite a drop in tax collections, and got a $250 billion bailout from the federal government. Today, both Republicans and Democrats are rejecting spending requests even from traditional allies — police, businesses, teachers, doctors and others — and keeping budgets balanced as federal aid recedes.

“We’re seeing some incredibly significant examples of groups not getting what they want,” says Scott Pattison, head of the National Association of State Budget Officers. “There doesn’t appear to be that much pushback. Maybe there’s an acceptance that cuts have to occur.”

State and local spending is down 0.8% this year — a 2.7% drop when adjusted for inflation — to an annual rate of $2.4 trillion, a USA TODAY analysis of Bureau of Economic Analysis data found. New budgets, which take effect July 1 most places, show elected officials continuing to restrict both spending and tax hikes.

In a contrast to the federal fiscal turmoil, most state budgets are passing smoothly, on-time and balanced, while influential groups are seeing their requests for money denied. Examples:

•Connecticut. The state troopers union endorsed Democratic Gov. Dannel Malloy, only to have him and the Democratic-controlled Legislature eliminate a required force size of 1,248 troopers. The force has shrunk to about 1,060.

•Ohio. Republican Gov. John Kasich stripped $30 million from nursing home payments — money the Republican-controlled Legislature had added after tax collections rose.

•Hawaii. Democratic Gov. Neil Abercrombie imposed a contract that cuts teacher pay and benefits while adding a performance evaluation system, over the objection of the teachers union. The union is challenging the governor’s move.

•Louisiana. The Republican Legislature and governor, Bobby Jindal, made it easier for non-violent offenders to avoid serving time or get out early, a move that will cut prison expenses.

“This is all about saving money, not protecting the public,” says Trooper Andy Mathews of the Connecticut troopers union. “It’s only a matter of time before someone is killed in the line of duty.”

Most frustrating to the budget losers: The money appears to be there. “The state is doing pretty well budget-wise. Spending is below forecasts, and revenue is above,” says Peter Van Runkle, head of the Ohio Health Care Association, which represents nursing homes. “The governor just didn’t think we needed the money.”

The biggest savings are taking place at the local level, prompted by cuts in state aid to schools and cities. Michigan replaced $307 million in general aid to cities with a $200 million program that must be used to improve efficiency. One result: Grand Rapids, Flint and Lansing will use the money to merge tax collection operations.

In Charlotte, the City Council rejected the city manager’s budget in a surprise vote because of worries that it could raise taxes. “We are being forced to prioritize,” council member Warren Cooksey says.

For states, cities and school districts, the spending drop represents the longest, sustained period of financial restraint since the early 1980s.

The pullback has trimmed 662,000 state and local jobs since August 2008, about 3%. Construction spending — such as schools, parking garages, rest stops — is down 10%. Borrowing has fallen. Even Medicaid, the health care program for the poor, has been trimmed since extra federal aid ended last July.

Financial challenges remain. At least 14 states have failed to make their proper annual payments to pension funds, sinking retirement systems into a deeper hole, says Chris Tobe, a financial analyst who has served on Kentucky’s pension board. “Real hard decisions are being pushed off to the future,” he says.

Proposed regs could kill off money fund industry: Professor

Changes to money-market funds would hike costs dramatically, decimate business, says professor

By Liz Skinner

June 18, 2012 3:11 pm ET

Money market reforms under consideration by regulators would increase borrowing costs for businesses and governments and ultimately add tens of billions of dollars in annual expenses for consumers and taxpayers, according to an academic’s analysis paid for by the U.S. Chamber of Commerce and released on Monday.

Georgetown University professor James Angel said the “immediate and radical” regulations being pushed by Securities and Exchange Commission Chairman Mary Schapiro and Federal Reserve Chairman Ben S. Bernanke could lead to the “elimination or at the very least a major shrinkage” of the $2.6 trillion money market industry.

The SEC is set to propose structural changes to money market funds that could modify the $1 share price to a floating net asset value, or recommend a capital buffer combined with restrictions on withdrawals. Ms. Schapiro will be on Capitol Hill again Thursday to explain to a Senate panel why further steps are necessary to protect investors from a destabilizing event like the 2008 collapse of the Reserve Primary Fund. The Treasury Department had to intervene at the time to prevent a run on money funds.

“These proposals have the effect of saying, ‘Let’s get rid of the industry or make it so expensive that no one will want to use it,” Mr. Angel said.

Regulators should evaluate how the 2010 money market fund reforms “have reacted to market stress and if they have achieved their purpose” before proposing new changes, he recommended.

At the Senate Banking Committee hearing on Thursday, Bradley S. Fox, treasurer of Safeway Inc., will speak in support of the Chamber of Commerce’s opposition to money market reforms, said David Hirschmann, chief executive of the business group’s Center for Capital Markets Competitiveness.

“This is at the top of our list of issues because of the broad impact it will have,” Mr. Hirschmann said

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