Nation’s Capitol Says Yes to the World & No to California

On Tuesday, the White House dashed hopes that the federal government would help California overcome a mammoth budget crisis that has brought the state dangerously close to an economic meltdown, saying the state will have to solve the problem on its own. However while the White House was telling California “No”, the United States House of Representatives was telling the world yes as they passed a war spending bill that not only funds the wars in Iraq and Afghanistan but gives tons of aid to foreign countries as well as a credit line to the International Monetary Fund in the United States name.

Now the White House spokesman Robert Gibbs said, "It's obviously not an easy time for the state of California," when he was asked if the administration would provide emergency financing for the state. "We'll continue to monitor the challenges that they have, but this budgetary problem unfortunately is one that they're going to have to solve," Gibbs said. In the meantime, California's revenues are plunging amid recession, rising unemployment and the prolonged housing crisis, and the state is unable to borrow its way out of its immediate financial trouble by issuing debt because of its budget gap. Plus California’s State Controller John Chiang said it will run out of cash within weeks if it does not balance its books and he estimated last week California was "less than 50 days away from a meltdown of state government."

Nonetheless, the House passed a $106 billion war funding bill as the war-funding legislation survived a fierce partisan battle. The bill is a major step in providing commanders in Iraq and Afghanistan the money they would need for military operations in the coming months. The $106 billion measure, in addition to about $80 billion for military operations, provides for an array of other spending priorities, including $7.7 billion to respond to the flu pandemic and more than $10 billion in development and security aid for Pakistan and Iraq as well as countries such as Mexico and the nation of Georgia. Also the bill includes a $108 billion U.S. line of credit to the International Monetary Fund for loans to poor countries that was pushed by Republicans who condemned $5 billion in the original measure in order to get the credit line for the IMF. Nonetheless, not all Democrats supported the bill so some of the measures such as the flu pandemic spending and other measures were added in order to appeal to some anti-war Democrats.

In the end though, Democratic leaders pushed the bill on behalf of the Obama administration and ultimately overcame all obstacles to achieve success. But with the state of California in a financial crisis, it is hard for many to understand why our U.S. Congress would seek to assist the rest of the world when states like California are continuing to struggle to deal with the effects of the global financial crisis that shock the economic foundations of the entire world. In fact, Rep. Howard "Buck" McKeon, R-Calif., top Republican on the Armed Services Committee, contended that Democrats were endangering troops by shifting money to create room for a "global bailout loan program." The overall vote of the bill was 226-202, with only five Republicans voting for the bill and 32 Democrats opposing it.

Those who supported the bill such as House Majority Leader Steny Hoyer, D-Md., said that he unsuccessfully appealed to Republicans for support, saying 80 percent of the package still went to the troops. "Stand up for them," he said. Still though, Californians are still trying to figure out how will it manage to get itself out of this budget crisis when man were expecting the federal government to rescue it. For nearly a year California Treasurer Bill Lockyer has pressured the U.S. Congress and the president to help the state with debt markets. That has gone on death ear and even while U.S. Treasury Secretary Timothy Geithner said this spring the administration was looking into assisting California and other states, it has yet to offer any help beyond that included for all states in the $787 billion economic stimulus plan passed in February.

Robert Gibbs, the White House spokesman said, "Obviously many states throughout the country because of the slowdown in our economy find themselves with severe budgetary constraints but the president believed and addressed part of this in the recovery and reinvestment plan by ensuring the largest amount of fiscal relief that we've seen move to states in the history of our country." Still Gibbs said he didn't "know the degree to which the White House has analyzed each of California's individual (budget) cuts." So with the White House saying “NO” but pushing for funds to fight a war overseas that includes billions in foreign aid, it leaves many in the state of California asking who our government working is for.

Now this is not the first time a U.S. president has closed the federal wallet to a struggling state or city. In 1975 the New York Daily News ran the headline "Ford to city: drop dead," when then President Gerald Ford denied assistance to New York City that would have allowed the U.S. financial capital to sidestep filing for bankruptcy. Still, the war funding bill has to be passed by the U.S. Senate and that could happen by the end of the week and could include $1 billion to fund government rebates for consumers who trade in their old vehicles for more fuel-efficient models. The Pentagon has said that without the bill the Army could start running out of war funds as early as July. Plus, President Barack Obama has pushed for the package, arguing that it is crucial to his efforts to wind down operations in Iraq while boosting personnel and fighting power in Afghanistan.

However, war spending bill is good for our American troops but it is layered with money that could go toward helping California which is needed because Washington’s rebuff adds to the debt market woes of our economy. On Monday, Standard & Poor's ratings agency put $67.1 billion of California's debt on alert for a possible ratings cut because the state may run out of cash by the end of July. Dick Larkin, director of credit analysis at Herbert J. Sims & Co Inc in Iselin, New Jersey, predicted a downgrade. "To say they've got big problems is an understatement. The budget problems are too large for the rating agencies to be comfortable with single-A ratings on the state."

Washington's view toward California is one more reason to not hold the state's debt, said Tom Tarabicos, a financial adviser at Wells Fargo Financial Advisors Network in Roswell, Georgia. "We're selling every California bond we can," Tarabicos said. "We don't like them."
Instead, Tarabicos said he may buy into California's general obligation debt next year should its yields rise to reflect inflation and continued risk to the state's finances from ongoing economic weakness. "Sometime next year you'll be able to buy California GOs somewhere around 7 percent or 8 percent," Tarabicos said, referring to general obligation bonds, adding: "Nothing is going to change in that state, fiscally, over the next two or three years. I just don't see anything positive coming out of there. It's going to be dead for quite a while."

Still not all in the House of Representatives agree with the war funding bill because Rep. Dennis Kucinich, D-Ohio, indicated that he wouldn't change his "no" vote, which he didn’t. "America has to start taking care of things here at home and we can't do it by continuing to support wars based on lies," he said. Kucinich sentiments were good news for Californians but it wasn’t enough to prevent the passage of the war bill or the White House from telling California no to any additional assistance from the federal government. Kucinich is for protecting our troops but feels the best way to do that is by stop funding wars based on lies and bringing our troops home now rather than continuing to fund the wars with billions that have already been wasted.

Plus the opening of a credit line to the IMF, doesn’t help the United States in the long run because it only adds to our countries national debt and with California looking as if its credit ratings will become junk, it will create more financial problems for our country with one of our largest states on the brink of bankruptcy. While this has happened before with New York during the 1970s but the economic impact of that hurt the U.S. economy right along with oil prices and other global issues. Therefore even with all the talk about the glimmers of hope in our economy, it could be a major setback to the economic recovery if California fails for bankruptcy.

What is even more disheartening about the White House telling California no is that the White House has bailed out the auto industry in recent weeks and owns General Motors while at the same time losing nearly $30 billion in loans that he gave both Chrysler and GM due to the fact that both filed bankruptcy so their loans were forgiven. Then to add on to that, the war funding including funds in it that the Pentagon did not seek. The measure had nearly $7 billion in "add-ons," funds not sought by the Pentagon. The Center for Arms Control and Non-Proliferation said those additions include controversial programs that the Pentagon did not want, such as $2.17 billion for eight C-17 transport planes.

The passage of the bill, which provides funds through the end of this fiscal year on Sept. 30, would bring to nearly $1 trillion the amount spent on the wars and other security matters since the Sept. 11 attacks. More than 70 percent of that has gone to Iraq, the Congressional Research Service said in an analysis. Congress has passed similar war supplementals — meaning the money is not part of the regular Pentagon budget and adds to the federal deficit — every year since 2001. The White House has said that this will be the last war supplemental and that future spending will go through the regular appropriations process.

The Obama administration is seeking $130 billion for war funds in the fiscal year 2010 starting in October, down from about $143 billion this year and $183 billion in fiscal 2008, the CRS said. Obama's original request last April was for about $83 billion, including $75.5 billion for defense purposes. But as is customary, Congress used the must-pass bill as a vehicle for adding new programs, such as the "cash for clunkers" measure, and for increasing funds. Money for pandemic flu, for example, went up by about $4 billion. The measure includes $10.4 billion in foreign aid, with $2.4 billion for Pakistan, $1.4 billion for economic development in Afghanistan and $700 million in international food aid.

House-Senate negotiators also reached compromises on several policy controversies: They denied the White House $80 million to close the detention center at Guantanamo Bay, Cuba, but agreed that detainees could be transferred to the United States to face trial. The issue of imprisoning convicted terrorists in the United States was put off for another day.

Still the nation’s capitol said yes to the world and no to California the people it is suppose to represent and who elected them to office, all in one day. Therefore time will as to how the California budget crisis works out but one thing is for sure and that is our nation’s leaders love to spend money even when we are in the midst of economic problems. While it’s a sad day for Californians, some of the world can rejoice because help is on the way.

The bill is H.R. 2346

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