MuniLand

New Jersey Governor Chris Christie recently berated Congress for its lack of progress on funding recovery monies for Hurricane Sandy. He made the argument that New Jersey and New York are net contributors to the federal treasury and they therefore deserve the funds that they requested. Yet, it is members of Christie’s own party who are slow-walking the legislation that would authorize spending. Republicans have raised some concerns – among them the amount of the original request and the need to budget for it.

The Republicans are right. More study should be performed into how states and communities are reimbursed for hurricane damage. Senator Charles Schumer of New York and others who are pushing for the funding cite the speed and largess of the federal government toward the affected Gulf region after Hurricane Katrina. But a study conducted by the Federal Reserve Bank of New York determined that the economic costs of Katrina were over-compensated to a level of 125%:

In hurricanes prior to Katrina, the [federal government reimbursement] rate was generally between 75 and 90 percent. However, beginning with Katrina, state and local governments often received 100 percent reimbursement. With this expansion of federal disaster assistance, payments from private insurance companies and the federal government exceeded the total economic cost of events since Katrina by about 25 percent.

On December 7, President Obama sent a Sandy funding request for $60 billion to Congress, which was a substantial reduction from the initial $80 billion request made by Governor Christie and New York Governor Andrew Cuomo. Senate Majority leader Harry Reid introduced legislation that mirrored the president’s request. Senate Republicans countered with a $23 billion offer.

I have argued for Congress to more thoroughly vet the appropriation given the federal government’s lack of funds. There is no doubt that the tri-state area needs relief, but the process and rationale for the funds should be much more substantive and transparent. The numbers often seem inflated. For example Louisiana Senator Mary Landrieu, whose own state suffered horribly in Hurricane Katrina, was admonishing the Small Business Administration to amp up its efforts for small firms affected by Sandy (emphasis mine):

Times have changed since 1989. That year, bond king Mike Milken was indicted on 98 counts of racketeering and securities fraud. He served two years in prison after he pled guilty to six securities violations. Milken paid $1.1 billion in fines and disgorgement to investors. His firm, Drexel Burnham Lambert, settled civil and criminal charges, but it went bankrupt the following year.

Now, because of the fragility of the financial system, UBS, the latest firm to be involved in systemic financial crimes after it was found to be manipulating Libor, will only face a criminal charge against its Japanese subsidiary. It is the equivalent of a legal slap on the wrist. The bank should instead be banned from conducting business in the U.S. The WSJ reports:

Regulators described the alleged illegality as ‘epic in scale,’ with dozens of traders and managers in a UBS-led ring of banks and brokers conspiring to skew interest rates to make money on trades. The six-year effort ‘seriously compromised’ the integrity of financial markets, said the U.S. Commodity Futures Trading Commission[…]

The SEC – the top law enforcer for muniland – has been riding the range. With 17 municipal securities enforcement actions in 2012, the SEC cops have come up with a nice collection of scalps.

The Bond Buyer held a webinar Wednesday on municipal disclosure with John Cross, who heads the SEC’s Office of Municipal Securities, Jay Goldstone, who heads the Municipal Securities Rulemaking Board and various municipal attorneys. It was an excellent summary of muniland disclosure laws, but what I found most interesting was John Cross’ discussion of the top SEC enforcement actions in muniland for 2012. Rounding up the bad guys. Here are the top four enforcement actions according to Cross:

1) The General Electric and Wells Fargo bid-rigging cases: In the case of General Electric, the U.S. Justice Department prosecuted criminal charges. Reuters reports:

Although the national media has always been a fan of Rhode Island State Treasurer Gina Raimondo, I’ve personally been lukewarm on her performance. She built a case for draconian changes in pension benefits for current workers by inflating the portion of the state pension plan that was unfunded. This led the State Assembly to adjust pension benefits in a way that seemed to go against the law. Unions sued the state and State Superior Court Associate Justice Sarah Taft-Carter has just ordered the case to undergo federal mediation. But I’ve always thought the bigger issue for Rhode Island was that its pension fund had horrible investment returns; some of the lowest in the country. And Treasurer Raimondo has only taken steps this week to change the fund’s management.

Pension funds derive 60% of their revenues from investment returns on a national basis. The other 40% of revenue comes from employee and government contributions. Rhode Island pension funds have had sub-par investment returns for years. The first thing that I would have done was change the pension fund manager before making legislative changes. One year ago I wrote this:

[…]The problems Raimondo addressed were not the biggest that the state faced. The main problem with Rhode Island’s pension system is that it has very poor investment returns on its $6.5 billion portfolio of assets. Over the past ten years the state’s investments returned 2.47 percent compared with the national median of 3.4 percent (page 6). These returns are in the lowest tier of state pension plans, and this chronic underperformance is causing a substantial shortage of assets to pay retirees.

I clicked on the live webcast of the U.S. Senate floor proceedings to find New Jersey Senator Robert Menendez pleading for Congress to take up H.R. 1, the Supplemental Appropriations Act that provides $60 billion in disaster funds for Hurricane Sandy. Unfortunately, Senator Menendez, in making his case for federal funding, was showing photographs of affluent Mantoloking, New Jersey. His advocacy shows why it is necessary for Congress to move slowly on the funding request to ensure that the spending gets to individuals and communities who really need assistance.

The proposed spending seems to fail to make distinctions between helping low income people who have no resources, and giving scarce resources to rebuild the summer homes of the wealthy. There was immense suffering in the aftermath of Sandy, but America is not rich enough to make the wealthy and the poor whole from the disaster. That is not the social compact that most Americans believe they have made as residents and citizens. How do we know exactly where the recovery monies will flow?

Mantoloking is a shore community with a year-round population of 296 (according to the 2010 Census) and a summertime population of approximately 5,000. Average income per person is $79,555,  versus average income of $35,678 per person in New Jersey and U.S. average income of $27,915, according to the U.S. Census. In a time when the U.S. is asking for sacrifices from its citizens, funding repairs for second homes would seem the last thing Americans can afford. When President Obama sent his funding request to Capitol Hill, one of the parameters he outlined was (emphasis mine):

Another mass killing in America. Another wave of grief and questioning. After the killing of 20 children and at least 6 adults in Newton, Connecticut, it’s time as a nation that we tighten the control of gun ownership. Australia changed its laws after facing a similar tragedy. After the Aurora, Colorado mass shooting in July that killed 12 people and injured 58 others, I wrote about how Australia approached gun control. It is worth revisiting and engaging the debate:

July 24, 2012 – After the tragic murders in Aurora, Colorado last Friday, the debate over gun control in the U.S. has been reignited. Policymakers would do well to study the case of Australia’s gun-control laws, which were put in place following a comparably tragic incident in 1996. After a man killed 35 people and wounded an additional 21 with two semi-automatic rifles in the Tasmanian town of Port Arthur, Australia passed a law that banned all such rifles, along with semi-automatic and pump-action shotguns, and then created a restrictive system of licensing and ownership controls.

The national government also undertook a gun buyback program. This involved each state and territory establishing and operating a system through which gun owners and dealers could surrender the newly prohibited weapons in return for compensation. Arrangements were also made to compensate firearms dealers for loss of business related to these newly prohibited firearms.

Governor John Kasich of Ohio and Governor Steve Beshear of Kentucky are forming a bi-state team to research funding options to replace the 50 year-old bridge that crosses the Ohio River and connects their states. The Brent Spence Bridge carries about double the volume it was designed for on Interstate 71. It is an example of valuable U.S. infrastructure in need of replacement. The big question is where the funds will come from. AP has the story:

The two governors were joined by U.S. Transportation Secretary Ray LaHood, and all three said that charging tolls would need to be a part of any financing plan.

“Uncle Sam is not coming in on a white horse to pay for all of this. Those days don’t exist anymore,” [Kentucky governor] Beshear said. “We need to find all kinds of sources.”

Nothing makes me happier than to see law as the weapon of choice in a fight between public officials. There is a big battle underway in the Commonwealth of Pennsylvania over the efforts of the governor to privatize the lottery, currently a big source of revenue for the state’s senior citizen programs. I wrote last week about Pennsylvania’s sweetheart lottery privatization deal:

There is a lot of darkness and a web of connections around the efforts to privatize the Pennsylvania state lottery. Tom Corbett, the governor of Pennsylvania, is attempting to force through the privatization before the legislature comes back into session in January and has a chance to review the terms of the 20-30 year deal. Democrats are howling.

One Democrat with a lot of legal authority is howling away, and he has essentially blocked the governor’s efforts to sell the highly profitable lottery to a British firm. The Patriot News writes:

Lansing, Michigan is aflame with the anger of union workers who object to how state officials have rammed “right-to-work” legislation through the state house. “Right-to-work” would end the requirement that workers join a union in their workplace if it is unionized. Union workers are especially incensed that the legislation was pushed through during a lame duck session without hearings or debate. The Detroit Free Press reports:

[State Rep. David Rutledge, (D-Ypsilanti)] and many other House Dems decried the manner in which the bills were introduced and passed with no committee hearings or public debate.

“For such a significant policy change that will have lasting repercussions to be taken up with no meaningful debate is absolutely shameful,” said state Rep. Woodrow Stanley, (D-Flint).

Cuomo: “New York will get the majority of it.”

— Capital Tonight (@CapitalTonight) December 7, 2012

Several days after hurricane Sandy slammed into the tri-state area, President Obama toured the devastated shore with New Jersey Governor Chris Christie and promised to deliver support. Last Friday, six weeks after the storm, the White House sent a $60 billion supplemental budget request to Capitol Hill for recovery funds. The request is likely to get tangled up in ongoing budget and debt-limit wrangling and intra-state politics. New York’s governor Andrew Cuomo is already showing some sharp elbows, as seen in the tweet above from his press conference last Friday with New York’s congressional delegation. Take that Chris Christie.

There seems to be a semi-resigned attitude among the senators from the affected states. Senators Charles Schumer (D-NY), Frank Lautenberg (D-NJ), Bob Menendez (D-NJ) and Kirsten Gillibrand (D-NY) said in a statement:

“This is going to be a tough fight in the Congress given the fiscal cliff, and some members have not been friendly to disaster relief,” they added.