by Dick Morris
The Times notes that “big telecommunications firms counter that they cannot justify huge investments in Internet infrastructure if they must offer access to all comers on basically the same terms.”151
But the debate is about more than just the terms of Internet use. It is about whether the government can control the Internet.
The Washington Times writes that “critics see the net neutrality push…as a government power grab and a threat to the major telecommunications companies such as Comcast and Verizon who are building the nation’s fast-growing broadband and smart-phone networks.”152
Incoming House Majority Leader Eric Cantor (R-VA) says that “imposing net neutrality requirements would significantly harm a key industry by shackling it with unnecessary and anti-competitive regulations at a time when we can least afford it.”153
Congresswoman Marsha Blackburn (R-TN) wants to give Congress the sole oversight of the Internet, taking the power away from the FCC.
The House must include explicit language prohibiting the FCC from interfering in the content, management, ownership, or coverage of radio stations and in taking away its power over the Internet in the debt limit expansion and the FY2012 budget.
So that’s the fight. It’s not just over the budget. It’s over the entire direction of our nation.
To repeat the list we gave earlier, it is about
Stopping tax increases
Rolling back government spending
Bringing the deficit down to 3% of the economy
Defunding ObamaCare
Blocking the EPA from imposing a carbon tax
Stopping the NLRB from killing the secret ballot
Freeing small banks to make loans again
Blocking the FCC from undermining free speech
Eliminating earmarks from the budget
If we do those nine things, we will have done a lot! We will have saved this country.
As Theodore Roosevelt said as he launched his Bull Moose Party in 1912: “We stand at Armageddon and we battle for the Lord!”154
Patriots, take note!
The budget battle will begin in May and June as the House begins to shape its spending plan and will really heat up as the federal fiscal year comes to a close on October 1.
But the first major clash of the 2011 legislative season will focus on the looming bankruptcies of state and local governments, and this battle will set the stage for the great confrontations later in the year.
THE COMING STATE BANKRUPTCIES
California, New York, Illinois, and New Jersey are the new Greece, Portugal, Spain, and Ireland. Their finances are so out of whack that they only stave off bankruptcy by depending on the repeated infusion of federal funds. Other states, like Michigan and Connecticut, are not far behind.
In the opening months of the legislative session, these profligate states will line up to get their annual federal subsidy. Like addicts at a methadone clinic, they will ask Washington to renew their fix—the grants they got in the stimulus package—so that they can balance their budgets, albeit precariously, on the backs of the taxpayers in other states.
These states are on the verge of bankruptcy. Their revenues are falling so far short of their spending that they are meeting their state constitutional requirement of a balanced budget only with massive and repeated infusions of federal stimulus spending. They are like patients living off blood transfusions.
In 2010, states collectively faced a budget gap of $158 billion, which forced thirty to raise taxes and forty-three to cut services. In 2011, states will face a shortfall of $180 billion.155
But these “gaps” are only the tip of the iceberg. The real deficits are much, much bigger, since it is only with massive federal aid—one-shot stimulus spending and regular payments—that most states are able to balance their budgets. If we only look at state and local revenue and compare it with their spending, their combined deficit runs to almost $1 trilllion:
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STATE AND LOCAL GOVERNMENT DEFICIT
(in US$ billions)
Year: 2009
Revenue: $2,248
Spending: $3,016
Deficit: 768
Year: 2010
Revenue: $2,286
Spending: $3,209
Deficit: 923
Source: U.S. Government156
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It would be OK if the states had used federal stimulus money to pay for capital projects. If they had, when the funding stopped, they could have just curtailed their capital programs. Fewer new schools. Cutbacks on highway building. Reduced prison construction.
However, our state and local elected officials have not used stimulus funding primarily for capital improvement projects, but to pay recurring annual expenses. The funds have prevented layoffs of teachers and other public employees.
Of course, the federal stimulus payments are one-shot monies that must be appropriated by Congress each year. Yet states and localities have spent these funds on recurring expenses that automatically come up annually.
While the Obama stimulus has done nothing to regenerate the national economy, it has kept these states from feeling the full impact of the recession as their tax revenues plunged. Like an anesthetic, the cash gifts have cushioned the shock of the state budget deficits and have encouraged continued high and growing spending at the state, local, and school board levels. There has been no reckoning, few cuts, and continued profligacy in state capitals around the nation.
The newly elected House Republican majority is committed to refusing to extend these subsidies and bailouts. Incoming Speaker John Boehner called the 2010 subsidy to the states a “bailout to the teachers unions.” He said it is some “of the most irresponsible policy that I have ever seen. The American people are screaming at the top of their lungs ‘STOP’ and Washington continues to spend, spend, spend.”157
This attitude of just-say-no is vital to holding the line on tax increases and to slashing government spending. When the states come begging for bailouts, it will be the first real test of the mettle of the Republican House.
Asked if they will bail out California and New York, Congress must not just say “no,” it must say “hell no!” These states made their own beds. Nobody made them outspend their revenues or forced them to give in to their unions. Other states resisted and are fiscally solvent. Why should their taxpayers bail out those who were less prudent?
And when the Republican House says “no,” it will send tremors through the vast market in municipal and state bonds. This debt, usually backed by the full faith and credit of state governments, has always been seen as secure. But when the Republican Congress refuses to renew the stimulus subsidies, it will be anything but.
There are $2.8 trillion of state, local, county, authority, and municipal bonds outstanding, $470 billion of them issued in 2009. Not only has the amount of debt proliferated, but the number of bond issuers has soared. Now 51,000 public and quasipublic entities issue these bonds.158
Strains are already appearing in the municipal and state bond market. In 2009, there were 194 defaults totalling $7 billion.159 Aware of the danger of default, bond insurers have been raising their premiums on particularly endangered states.
Nationally, since the end of 2009, the cost of insuring state debt for the United States as a whole has risen by only 1%, since most states are not at risk. But the costs for certain states have skyrocketed, reflecting their tenuous financial situation.
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INCREASE IN THE COST OF INSURING AGAINST STATE DEFAULT
(price reflects the cost to insure $10,000 of debt for 5 years)
State: U.S. Average
% Increase from 12/31/09 to 7/1/10: 1%
State: Illinois
% Increase from 12/31/09 to 7/1/10: 117%
State: New York
% Increase from 12/31/09 to 7/1/10: 87%
State: New Jersey
% Increase from 12/31/09 to 7/1/10: 87%
State: California
% Increase from 12/31/09 to 7/1/10: 35%
Source: Bloomberg Financial Data160
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These four states are all judged riskier by the credit markets than either Spain or Ireland, two of the five nations caught in the crosshairs of the European debt crisis. (The others are Greece, Portugal, and Italy.)
Conditions in the state and municipal bond market have steadily deteriorated over the past year, and a crisis is in the offing. On November 18, 2010, state and local governments withdrew $700 million in bonds they had put up for sale because of weak market demand. California postponed a $267.3 million bond offering “in light of market conditions.”161
“The tax-exempt municipal bond market is a cold, cold world right now for issuers and taxpayers,” said Tom Dresslar, a spokesman for the California state treasurer.162
After seven months of increasing purchases of municipal bonds, sales dropped by $115 million the week of November 8, 2010—days after the election of a Republican House of Representatives.163
The elections likely caused this new trend because it is only one-shot federal stimulus payments that are holding these local and state governments up, and investors fear the Republicans won’t continue the subsidies. On average, these grants are now funding 9.4% of state budgets.164
When New York and California and some other liberal big-spending states come calling for more aid, the Republican House must hold the line, stopping this raid on the federal Treasury. The cry in the Republican caucus of the House of Representatives must ring loud: “No More Bailouts!”
The spendthrift states will threaten massive closures and predict dire consequences if their path to the Treasury is barred. They will say they will have to close schools and open the prisons! Republicans will be under incredible pressure to cave in. Bondholders will panic and demand federal action.
If Republicans cave in during this first battle, they are doomed. The country will see them as frauds and their own constituents will be revolted. Tea Party–sponsored primaries will not be far behind.
But if they hold their ranks solidly and don’t panic in the face of threats of closure of public services in the bankrupt states, they will prevail.
The fact that many of the governors of the more fiscally solvent states will be Republican will help the party hold the line on the demands for state bailouts. These governors will be wrestling with their budget crises and will be largely succeeding without the need for massive federal aid.
Consider the experience of the two Republican governors elected in 2009: Virginia’s Bob McDonnell and New Jersey’s Chris Christie.
In Virginia, under McDonnell’s prodding, the General Assembly slashed state spending to 2006 levels. Delegate Lacey E. Putney, the chairman of the Virginia House Appropriations Committee, said, “In my 49 years in [the House], I’ve never seen a budget situation like this one this year.”165
But McDonnell managed to balance the state budget with no new taxes and only about $100 million in new fees, forcing city and county governments to match the state cuts by curbing local spending. The budget cut $250 million from public education, while Medicaid reimbursements were cut by 7%. State workers got no pay raise.166
In New Jersey, Governor Chris Christie had to work with a Democratic state legislature but, nevertheless, got through a balanced budget that cut spending by 9% below the previous year. When Democrats passed a one-year surcharge tax on millionaires, Christie vetoed it and the veto stuck. In all, the Democrats were able to restore only $74 million of the $400 million in cuts Christie had wanted.167
But, in saying no to state demands for bailouts, the Republican House must give states the same option that private businesses have—go bankrupt and abrogate your union contracts.
It’s not as if we don’t know what is causing these potential state bankruptcies. There’s no mystery. They are due to decades of concessions to public employee unions who multiply their demands for pay raises, benefit increases, and more liberal pension benefits every year.
While only 7% of the national labor force is unionized, 43% of all state, school, and local employees belong to unions.168 Their wage demands, pension requirements, and work rules are driving their governments over the financial cliff. Many states—notably California, Michigan, and New York—are straining to meet their contracts by raising taxes and driving their economies further down. The familiar death spiral has set in, with ever larger deficits, bigger tax hikes, and slowed economies, which, in turn, lead to even larger deficits.
Like cancer cells multiplying at the expense of their host’s health, these union contracts have grown so hefty that they are killing the states that have signed them. Just as the cancer will ultimately strangle the healthy cells, these contracts will doom their governments unless they are stopped.
Already, rabid union demands have led to the death of many American businesses. Unable to meet the stress of foreign competition, the companies have moved offshore, gone bankrupt, or dropped product lines. The cancer kills its host and seals its own fate; the unions that represent these workforces begin the hemorrhaging of jobs. In industry after industry, the unionized workforce has fallen because the union demands have doomed their companies.
But public sector unions, bolstered by their political clout in state and local governments, have avoided this fate. Armed with the power to coerce those who have the power to tax, they have thrived.
In effect, when New York, Illinois, and California come calling for subsidy, the Republican House should say: “No, we won’t give you money. But we will give you the way to get yourself out of your financial hole by permitting you to reorganize like any private company can and to free yourself of your union contracts.”
If the governors and state legislatures of those states refuse, it’s up to them—they can always raise taxes or cut services to make ends meet. That is their option. But if they choose not to do so, the Republicans in the House give them a way out: reorganize in bankruptcy.
Obviously, faced with this choice, the voters of these states will rise and demand that their governments avail themselves of the bankruptcy option. Knowing this likely reaction, Obama will veto the new bankruptcy law and a confrontation will ensue.
The political control exerted by unions such as the National Education Association (NEA), the American Federation of Teachers (AFT), the Service Employees International Union (SEIU), and the American Federation of State, County and Municipal Employees (AFSCME) is so formidable that no local government can stand up to it. When wage demands soar at contract time (even in the face of low or no inflation), state and local governments inevitably cave in. But, even worse, they try to hold wage increases down by expanding pension benefits and agreeing to work rules that make government productivity impossible.
Our entire federal system has been so corrupted by public employee unions that we no longer control our own state and local governments, but find them under the thumb of their unions. No longer do we run schools for the benefit of students. They are operated for the welfare of their teachers. Work rules, pay raises, and union contracts have turned the world upside down. It is now the providers of public services that are themselves served and the public has little control over how its tax money is spent.
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PUBLIC EMPLOYEE UNIONS’ POLITICAL CLOUT
Union: NEA
Membership: 3.2 million
Political Spending: $50 million
Union: AFT
Membership: 888,000
Political Spending: $19 million
Union: AFSCME
Membership: 1.5 million
Political Spending: $48 million
Union: SEIU
Membership: 1.9 million
Political Spending: $58 million
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With public employee unions spending almost $200 million each year to influence political decisions, what kind of chance do elected officials have of resisting their demands? The drama has played out in town halls, city halls,
state houses, and state legislatures all over America, and the union always wins.
But just as union demands have led to bankruptcies in the private sector, driving jobs overseas, promoting outsourcing, and leading American business to fail in the face of foreign competition, so the moment of truth has come to the public sector.
If Republicans say no to the incessant demands, pleas, and threats from state and local governments and refuse to renew the federal subsidies, these unions and their states will be brought face-to-face—finally—with the consequences of their demands.
Defeating the unions by refusing to bail out the states is also a political necessity in the larger political battle. It is the power of these unions that is bolstering the political fortunes of the Democratic Party.
The elections of 2010 demonstrated their power. In state after state, the vote totals of Democratic candidates, particularly those running for Senate, exceeded the predictions of all pollsters. This gap between preelection anticipation and Election Day results had one main cause: the militancy, money, and manpower of public employee unions. It was the combined efforts of the SEIU, the NEA, the AFT, and AFSCME that preserved the Democratic control of the U.S. Senate.
Nate Silver, writing in the New York Times, compared the results of the major public opinion polls for the twenty-one days before the election with the actual results. He found that seven of the eight major polling firms overestimated the Republican vote, some by as much as an average of four points. Silver wrote to criticize the accuracy of these firms and their surveys and, perhaps, to impute a partisan bias to their findings. But it is far more likely that the polls were right and that the Election Day performance of the Democratic Party’s ground game overcame even substantial Republican leads in states like Nevada.
Here are Silver’s findings.
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