Governor Patrick Hits the Tube Again

Governor Patrick once again takes to You Tube to talk about reform, and his stance that revenues must not come before fundamental change. He makes the case that the Legislature needs to act on reform across a multitude of issues, and that taxpayers should not be asked for more before such real change is enacted. I do believe that the Governor is fundamentally correct, especially in opposing the sales tax. But he needs to do more in advocating for broader change at the municipal level, including taking the “full plunge” on municipal health care. His strong stance on state level change needs to occur at the municipal level as well.

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Chrysler Goes Bankrupt

Chrysler Corp filed for bankruptcy yesterday, with the Administration unable to close a deal that would have averted the filing. And while the Administration is hopeful that the legal filing will expedite the emergence of a new Chrysler, shorn of the debts that have destroyed the company it will now have to take its chances in bankruptcy court. But despite applying some tremendous pressure agreement could not be reached with all of Chrysler’s debt holders, and I have a sense that the legal wrangling is just begining, and this bankruptcy will be a much longer process than the President is looking for. The Administration envisions a new Chrysler emerging with the UAW holding a 55 percent stake, Fiat up to a 35% stake, and the U.S. Government with 8%, and the Canadian government at 2%. The UAW would earn their majority ownership by forgiving $6 billion in debt owed to the retirees health care fund. The new Chrysler will give a promissary note for the remaining balance of $4.6 billion to the UAW pension health care fund, to be repaid over 13 years. But others in the Chrysler credit line will also be foregoing owed debt, including the US taxpayer, who agrees under this scenario to forego $4 billion in debt. Additionally the US will provide bridge bankruptcy finance worth billions, and promises additional financing once the new Chrysler emerges from bankruptcy. For those billions the taxpayer gets 8%. The lenders that agreed to the terms offered by the Government will receive $2 billion of the over $6 billion owed as part of the bankruptcy. But those pesky “non tarp” lenders have refused to buckle under, and have in law some pretty compelling claims, including liens against Chrysler assets, and a higher ranked debt than other non-secured lenders. The Administration felt that despite their superior legal standing they could get these lenders to accept terms that subordinated their claims to other debt holders. They have refused, and they will make some pretty powerful legal arguments in bankruptcy that have the potential to hold this deal up, or destroy it. Their designation of themselves as the “non-tarp lenders” is a kick to the other creditors who buckled under, but who have received government money and are by implication are subject to “government influence”. It is a gambit by the Administration to save jobs, and the saving of manufacturing jobs in the U.S. is critical, in my opinion. Despite that feeling I do not see this deal as saving the company because I do not think the numbers will add up in the end. This bankruptcy, and whether the Administration can get its way in bankruptcy court, should tell us plenty about what will happen over at G.M. The White House fact sheet is attached, and below is the statement of the “non-tarp” lenders.

As of last night’s deadline, we were part of a group of approximately 20 relatively small organizations; we represent many of the country’s teachers unions, major pension and retirement plans and school endowments who have invested through us in senior secured loans to Chrysler. Combined, these loans total about $1 billion. None of us have taken a dime in TARP money.

As much as anyone, we want to see Chrysler emerge from its current situation as a viable American company, and we are committed to doing what we can to help. Indeed, we have made significant concessions toward this end — although we have been systematically precluded from engaging in direct discussions or negotiations with the government; instead, we have been forced to communicate through an obviously conflicted intermediary: a group of banks that have received billions of TARP funds.

What created this much-publicized impasse? Under long recognized legal and business principles, junior creditors are ordinarily not entitled to anything until senior secured creditors like our investors are repaid in full. Nevertheless, to facilitate Chrysler’s rehabilitation, we offered to take a 40% haircut even though some groups lower down in the legal priority chain in Chrysler debt were being given recoveries of up to 50% or more and being allowed to take out billions of dollars. In contrast, over at General Motors, senior secured lenders are being left unimpaired with 100% recoveries, while even GM’s unsecured bondholders are receiving a far better recovery than we are as Chrysler’s first lien secured lenders.

Our offer has been flatly rejected or ignored. The fact is, in this process and in its earnest effort to ensure the survival of Chrysler and the well being of the company’s employees, the government has risked overturning the rule of law and practices that have governed our world-leading bankruptcy code for decades.

We have a fiduciary responsibility to all those teachers, pensioners, retirees and others who have entrusted their money to us. We are legally bound to protect their interests. Much as we empathize with Chrysler’s other stakeholders, the capital is just not ours to contribute to their cause by accepting a deal that is outside the well established legal framework and cannot be rationalized as being commercially reasonable.

We are continuing to discuss our position with the United States Treasury. We have made a proposal which we earnestly believe is fair and would appropriately recognize our legal position.

As President Obama implied yesterday, it is likely that Chrysler will have to file Chapter 11 whether or not all lenders agree to any particular proposal. Chapter 11 is often used to help implement an agreed deal and dispose of unwanted legacy liabilities. We are hopeful and optimistic that we will reach a positive resolution of our issues so that all stakeholders will move forward together to implement Chrysler’s “quick trip” restructuring in an un-contested proceeding. Our Group will never initiate a bankruptcy filing on Chrysler — that is a decision for the Company and the Administration to make.

As we all appreciate, laws are the foundation of our economy and society. Despite recent travails, our country remains the economic envy of the world and the United States remains a vital engine of global growth. The rule of law made it that way. We urge that people remember this and not succumb to unproductive and unwarranted finger pointing.

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Budgetary Suicide

Here is a clip with Braude and Mike Widmer. A good clip, but please note Widmer’s contention made near the end that the House budget is between $1 billion to $1.5 billion off in revenues. (I have been lowballing that shortfall here at $500 million.) Not to repeat myself but even with the House addition of $900 million in new sales tax revenue the budget may be off by as much as $500 million dollars. And what is the House doing? Adding back spending cut out of the original Ways and Means budget. The State House News Service says they are “spending spree”, apparently believing they can keep adding because of that $900 million dollar windfall. What an enormous mistake. I realize that much is posturing, since many realize that this spending will be left on the cutting room floor after the Senate takes it turn at the wheel. But in light of the continued erosion of revenue it reflects a fundamental disregard for the laws of math. Widmer has further downgraded revenue estimates for 2010.

The taxpayers foundation is preparing to release a revised fiscal 2010 forecast, with Widmer using the same “like a rock” qualifier as Murray to describe falling revenues. MTF in December projected an $18.6 billion tax collection estimate for fiscal 2010; the Legislature and Patrick went with a $19.5 billion estimate. Widmer told reporters Thursday that the foundation’s revised estimate would be “around 18” billion dollars, with the final revision hinging on final April tax collections.

Lets see what the Senate comes up with, but the reality is that the House process has now turned into a political charade not grounded in reality. The House should raise its collective head, because there is a freight train bearing down on them, and they are right in the middle of the track.

http://c.brightcove.com/services/viewer/federated_f9/16977198001?isVid=1&publisherID=245991542

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Republicans Attack Specter by Linking Him to Bush

As Republicans squabble over the defection of Arlen Specter the Republican Senatorial Campaign Committee unleashed a phone call in PA attacking Specter by reminding voters that he was endorsed by President George W. Bush in his last re-election campaign. I guess the Republicans, seeing the great success enjoyed by the Democrats, have decided to run against George Bush as well. What can we expect next? How about Michael Steele attacking Dick Cheney? The sniping continues with the Republicans attacking each other as much as they are attacking Specter. From Politico:

Republican Sens. Orrin Hatch and George Voinovich blamed the Club for Growth for imposing a right-wing litmus test that chased Arlen Specter out of the Republican Party. The Club for Growth blamed Specter — first for helping to ruin the GOP and then for leaving it. A leading Republican strategist blamed the party for turning its back on moderates. Sen. Lindsey Graham sniped at Republican National Committee Chairman Michael Steele. Specter’s pollster blamed the stimulus bill. Karl Rove blamed Specter himself.

The Club for Growth argued that having a big tent Republican Party dilutes its strength by promotring policies that offend the base. Better to be small but pure:

But Andy Roth, the Club for Growth’s vice president for government affairs, said the Republican Party is at its nadir precisely because it has tolerated the likes of Specter.

“Let’s look at what a big-tent Republican Party gets you,” said Roth. “Over the last eight years, we had Big Government with a party that had no identity. People like Specter destroyed the Republican brand.”

“The reason why Arlen Specter left is because of Arlen Specter, not because of the Club for Growth or Pat Toomey,” he said.

So the Republicans continue the circular firing squad, led jubuliantly into the circle by Michael Steele. It just does not seem right to me that the RNC is paying Steele’s salary. The DNC has a moral obligation to pick up at least some of that expense.

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Political Fallout

The House vote to hike the sales tax to 6.25 percent is causing some major political ripples on Beacon Hill, with both the Speaker and the Senate President expressing astonishment and outrage that the Governor would be critical of the Legislature. The exchanges between the Big Three were pretty tough and extensive, with the Legislature defending against Patrick’s charges of inaction and watered down reform. Patrick stepped it up a notch with new threats to veto either the Pension Bill or the Transportation Reform bill currently in conference. From the State House News Service:

Patrick made his comments Monday in an interview with WBUR reporter Martha Bebinger. Asked whether he would veto the Legislature’s pension or transportation bills if he deemed the reforms inadequate, Patrick said “you bet.” “I’m not interested in some papered over victory, something that is halfway there that we can claim is reform and then move on,” he said, according to a transcript of his remarks. “I’m not about fighting with the Legislature. It’s about fighting for our values and priorities.”

As the process moves forward there were some interesting developments yesterday.

The House, utilizing revenues from the sales tax increase, put $205 million back into the local aid account. I believe that would translate to about a million dollars over the House Ways and Means number for Methuen.

The Senate President said that FY2009 benchmarks were going to be off by $400 million or more. Neither Legislative branch has taken any steps to deal with the FY2009 shortfall. It will likely have to come out of the State rainy day fund.

Senate Ways and Means Chair Steve Panagiotakos seemed to indicate that the Senate would go along with a sales tax increase of some magnitude, and I saw Senate President Murray say that additional revenues may be needed beyond the sales tax.

Michael Widmer’s Massachusetts Taxpayers Foundation has produced a short sales tax primer that deals with revenue estimates and state to state comparisions. I have attached it below. Widmer gives an estimate for FY2010 of $905 million in increased revenue for the 25% increase in the sales tax, which is in line with legislative revenue estimates. I had questioned the $900 million dollar figure, but Widmer’s estimates have been pretty reliable.

The Beacon Hill Institute has produced an anaysis of a sales tax hike to 6%, and that study says it will cost 10,000 jobs and have the Commonwealth lose 42 million dollars of business investment. That study is below.

The Tribune slammed local reps who voted in favor of the sales tax hike pretty hard. The Tribune editorial link is below.

The Globe, who had expressed some editorial support for a sales tax hike this week, shifted gears somewhat and supported the Governor’s call for reforms. The Globe editorial highlighted two items that the Legislature will apparently fund with some of the additional revenues. First, the Quinn Bill at $50 million. The second would be an elimination of the House budget provision increasing the percentage paid by state employees for health insurance from 20 percent to 30 percent. The Globe was heavily critical of both of those items, as well as legislative inaction on the other reform items. That editorial is linked below.

Read the Tribune editorial here.

Read the Globe editorial here.

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Methuen Swine Flu Preparations

There has been much talk and concern about the “Swine Flu” outbreak, and although we have not had any recorded cases as of yet in Massachusetts I have asked our Emergency Management Team, our Public Health Director, and our School Department to work jointly to prepare for any problems that might arise. This Monday I activated our Emergency Response effort, and we had a meeting today to deal with preparation and best practices to try to avoid infection. Our preparations include today’s Emergency Management Meeting attended by School Superintendent Whitten, as well as continued contact with and coordination with regional emergency management as well as with the State Department of Public Health. We are also in contact with Federal Emergency Management folks as well. Action items include advance procurement of some additional supplies, including supplies that may be needed by first responders.

We have also begun coordination with the Holy Family Hospital Infectious Disease Coordinator, and today our Health Department participated in a conference call between Holy Family Hospital and the State Department of Public Health.

We are prepared to open an EDS (Emergency Dispensing Site) if needed to deliver medication. The federal government has released 25% of the SNS (Strategic National Stockpile) of flu treatment medication to every state to expedite the delivery of medication to the general public if needed.

And finally we have begun preparations to open our Emergency Management Operation Center, if needed.

At this time we do not anticipate that such actions will be needed, but advance preparation is the key to successful Emergency Management. I will keep you apprised of any new developments, and please feel free to call us with any questions. You can call us at the Mayor’s office at 978-983-8505 and we will do our best to get you the answers you need. Superintendent Whitten and I will send home a letter to parents on this subject that will go out this week. I have attached three advisories from the Massachusetts Department of Public Health, including one on schools and the flu.

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Governor Patrick Takes to the Tube

Governor Deval Patrick cut a You Tube video to make his argument on revenue and reform, and once again threatened to veto a sales tax hike. The Governor now has the high ground on reform, and if he is smart he will never leave it again. Running against the Legislature is like picking beautiful fruit off a bountiful tree. It is just so easy. And the fruit is delicious.

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Arlen Specter to Switch Parties

Senator Arlen Specter, in a major development, announced today that he is running for re-election as a Democrat. Specter was facing an almost certain loss in the Republican primary to Club for Growth guru Pat Toomey, who led Specter by over 10 points in some recent polling. Chris Cillizza of The Fix at the Washington Post broke the story this morning. Specter would have to be considered a big favorite in a general election campaign against Toomey, if he can safely secure the Democratic nomination. Specter’s switch will now bring the Democratic caucus in the Senate to 60 after the arrival of Al Franken of Minnesota. From the Specter statement:

“I have decided to run for re-election in 2010 in the Democratic primary,” said Specter in a statement. “I am ready, willing and anxious to take on all comers and have my candidacy for re-election determined in a general election.” …
“Since my election in 1980, as part of the Reagan Big Tent, the Republican Party has moved far to the right. Last year, more than 200,000 Republicans in Pennsylvania changed their registration to become Democrats. I now find my political philosophy more in line with Democrats than Republicans.”

So the Republicans drive out another moderate, and their numbers continue to dwindle. Specter had been heavily criticized by Toomey for supporting the Obama stimulus bill. He was one of only three Republicans to do so.

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Mass House Passes Sales Tax Hike

The Massachusetts House, working into the night, passed a sales tax hike of 1.25%, bringing the sales tax to 6.25%. The House passed the increase after a day of hard lobbying by the Speaker, by a vote of 108-51. I will post the full tally as soon as it is available. The margin that the Speaker achieved was veto proof, with 107 needed to get to that mark. The Speaker felt obligated by the Governor’s veto threat to drive the whip hard, and he certainly did do that. The fight now moves to the Senate, where Ways and Means will have to produce a budget with a more realistic revenue number than the House.

It is inconceivable to me that the Speaker would have gone to all this trouble if he did not have an agreement with Senate President Murray to have the Senate move in the same direction on revenue. Will the Senate be able to produce a veto proof majority for a sales tax hike to 6.25%? It is going to be a battle, with Republicans unable to produce sufficient numbers to help the Governor sustain a potential veto. But what will come out of the Senate will be a budget that will show how little of an impact this hike will really have. Constituencies that believe this tax will be budgetary salvation are in for a rude suprise. I have talked about the numbers in a prior post, so no need to rehash here. Today’s Tribune has a story on the sales tax proposal. I called the proposal a job killer, and that it is. Read the Tribune story here.

Sales Tax Roll Call Vote is Now Posted Below.

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Governor Patrick Steps Up

This morning I posted on the potential for a sales tax increase, and in that post I asked where the Governor was, and speculated about the potential for a veto threat from him. He must have read my blog. He has, this morning, sent a letter with an explicit veto threat against the sales tax hike. Good policy choice, and an outstanding political move. The Governor deserves praise and credit for having the guts to threaten the veto. The move towards this sales tax increase is poorly thought out, and will destroy what is left of business along the New Hampshire border.

In his letter the Governor just about takes up the “reform before revenue” mantra, pointing to legislative inaction on his FY2009 proposals to create a new revenue stream for municipalities, the Senate’s failure to act on ethics reform, the legislative failure to act on municipal health care reform, and the pending conference committee on transportation reform which may produce a bill that the Governor considers substandard. He once again calls on the legislature to opt for “comprehensive solutions” to our problems. Without addressing reforms and revenue in a comprehensive way the Governor explicitly threatens to veto a sales tax increase.

The Governor’s veto threat should, if thought about without rancor, stop the House from voting a sales tax increase. Governor Patrick has stepped up and changed the political equation with one swipe of his pen. Now is the time for leadership to come together and bring bold solutions forward that will manage to offend some key constituencies but that will work for the Commonwealth as a whole. Kudos to Governor Patrick.

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