In his Reuters blog, James Pethokoukis states the biggest political battle in Washington next year will be the Congressional Republicans plan to: a) avoid a federal bailout of financially troubled states; and b) cripple employee unions by pushing fiscally troubled states, including California and Illinois to declare bankruptcy.
That’s why the most intriguing aspect of President Barack Obama’s tax deal with Republicans is what the compromise fails to include — a provision to continue the Build America Bonds program. BABs now account for more than 20 percent of new debt sold by states and local governments thanks to a federal rebate equal to 35 percent of interest costs on the bonds. The subsidy program ends on Dec. 31. And my Reuters colleagues report that a GOP congressional aide said Republicans “have a very firm line on BABS — we are not going to allow them to be included.”
In short, the lack of a BAB program would make it harder for states to borrow to cover a $140 billion budgetary shortfall next year, as estimated by the Center for Budget and Policy Priorities. The long-term numbers are even scarier. Estimates of states’ unfunded liabilities to pay for retiree benefits range from $750 billion to more than $3 trillion.
Though we agree public sector unions are a huge problem, its a risky strategy and borders on reckless. . Once markets reach the tipping point, the subsequent volatility and contagion is very unpredictable and extremely difficult to stabilize. Have they not learned from the Lehman failure?
The muni market is getting hammered again. No sh%t!