Volume I Issue 4
March 16, 2009
Crude Oil - $100 per Barrel or $10 per Barrel – Where Does it Trade From Here? Page 12
Dubai: Could the Real Estate Bust Take Down the Emirate? Page 5
States Wrangle with Washington over Stimulus Spending Page 16
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Global Economist Review
CONTENTS
Is published bi-weekly FREE Online
Economic HeartBeat Dubai: Could the Real Estate Bust Take Down the Emirate? by Sivaramakrishnan V, CFA An in-depth look at Dubai’s real estate market. The tremendous growth experienced in the past few years and how the global economic crisis has affected that growth.
Publisher and Editor Timothy LuCarelli Associate Editor Karen Smith Webmaster Edgar Patel Contributing Writers
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What Happened To All the Money? by Timothy LuCarelli An examination of credit and how it created an economic bubble that popped. Who is to blame and who suffers. Page 9
Steve Evens Frank McGuire Sivaramakrishnan V For Subscription Information Please visit the website www.globaleconomistreview.com/
Investment Markets
subscribe.html Contact Information
Technician’s Corner
244 Fifth Avenue, Suite 1846
By Frank McGuire
New York, NY 10001-7604
Crude Oil - $100 per Barrel or $10 per Barrel – Where Does it Trade From Here? Crude oil, one of the most important and influential commodities in the world made new all time highs 8 months ago and is now $100 off it’s highs. The price of crude has a profound effect on future economic growth for people everywhere. Mr. McGuire examines the technical reasons for buying or selling. Page 12
646-350-0089 Editor’s Office ext. 100 editor@globaleconomistreview.com Advertising ext. 120 advertising@globaleconomistreview.com Subscriptions & Technical ext. 150 subscriptions@globaleconomistreview.com
Political Influences
Accounting ext. 180 accounting@globaleconomistreview.com
States Wrangle with Washington over Stimulus Spending
Advertisements in the Global Economist Review are the sole responsibility of the adverBy Steve Evans The U.S. latest stimulus package provides for a half a trillion dollars to be divided tiser. Consumer complaints should be directed to the individual advertiser. amongst 50 states and the District of Columbia, but with strings attached. Arguments and political wrangling abound. Page 16 ALL RIGHTS RESERVED ON ENTIRE CONTENT Global Economist Review (ISSN 1946-7230) is published bi-weekly (two times in a calendar month period) by Timothy LuCarelli and is free of charge by viewing online or in downloaded PDF format. Reproduction of content, articles or advertisements, is strictly prohibited without the express written consent of the Publisher. All information is provided as is and has been checked for validity to the best the writers’ abilities. Any third party information has been reprinted with permission of the content owner and may not be reproduced from this publication without the owner’s consent.
Global Economist Review
March 16, 2009
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From The Editor
Welcome to another edition of the Global Economist Review. We have met with great success in the first few issues obtaining readers from all over the world. To accommodate those readers and live up to our name, Global, we are providing more international writers and topics. In this issue, we are looking at the Middle East and the forces contributing to their economic situation. In the next issue, we will continue the exploration into other parts of the world providing economic, political and market events from many countries. Word of mouth is our best form of advertising so please tell a friend about the magazine and website. Our next issue will be released on April 1, 2009.
Timothy LuCarelli Timothy LuCarelli Editor-In-Chief and Publisher Global Economist Review tlucarelli@globaleconomistreview.com
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Economic HeartBeat
“About the time we can make the ends meet, somebody moves the ends.�
Herbert Hoover
Global Economist Review
March 16, 2009
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Dubai: Could the Real Estate Bust Take Down the Emirate? By Sivaramakrishnan V, CFA A look at a 25 year old picture of Dubai lar subsidiaries. The largest of these subsidiarshows vast stretches of sand, one long mud road ies are DP world, Dubai holdings, Dubai Elecall the way to Abu Dhabi and a few double- tricity and Water Authority, Emaar properties, storied buildings. The old Jabel-ali port was an Nakheel properties and Borse Dubai. Many of alternative to the Abu Dhabi port and brought these companies are large holding companies trading traffic by sea and land to themselves. According to Moody’s Dubai. However during the last From being an latest report on Dubai’s credit en25 years, the growth of Dubai has vironment, Dubai government unexplored and been nothing short of a miracle. has a debt obligation of US$10 From being an unexplored and dangerous des- billion while all these companies dangerous desert land, Dubai has together hold about US$70 bilert land, Dubai come to be known as the “Newlion in debt. Just to put this in perYork of the East” and all this in has come to be spective, it is to be noted that the just a few decades. Just when known as the Gross Domestic Product (GDP) of Dubai was planning to rival the Dubai in 2008 was US$82 billion “New-York of likes of New-York, London and according to the print edition of Hong Kong with its record break‘The Economist’ dated February the East” ing man-made giant structures, 26, 2009. In February, Moody’s brand new airport and metro train downgraded the outlook of six of network, the dreams came crashing down as the the top companies owned by the Dubai governreal-estate market came to a standstill. For a city ment to negative and left the “stable” outlook of most often associated in the western media with the United Arab Emirates (UAE) federal govsuperlatives such as “tallest” and “largest”, the ernment unchanged. Moody’s does not publicly title of “the worst performing equity market in rate the Dubai Government. Recently, as Abu the Middle-East” comes as a shock. Now the Dhabi recapitalized its banks to an extent of crucial question is whether the Emirate can sur- US$16 billion, the Credit Default Swaps (CDS) vive the current economic debacle. on Dubai widened and reached levels not even Dubai actively follows a hub-and-spokes seen by the bankrupt Iceland. Amid rumors of a model for development wherein the Dubai Gov- rift between Dubai and Abu Dhabi, the central ernment being the hub performs the function of bank of UAE subscribed to US$10 billion of the holding the spokes together tightly while the US$20 billion debt issue by the Dubai governcorporate entities owned by the Dubai govern- ment, which pepped the equity markets up and ment become the spokes and perform the func- pulled the CDS spreads down. Now the cost of tion of rotating the economic wheel. In a way, insuring Dubai’s debt through CDS stands at Dubai itself is run as a giant holding company about 750 basis points (7.50%). with majority stakes in many multi-billion DolPage 5
Construction and real estate sectors Global Economist Review
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form the core of Dubai’s economy. From the data provided by the National Media Council of the UAE, unlike other major gulf economies, the share of oil-related revenue in Dubai’s GDP is miniscule at about 6%. UAE, in which Dubai is one of the seven Emirates, received over 35% of its GDP from oil related businesses in 2008. Construction sector is to Dubai what oil is to Abu Dhabi. Construction and real estate account for about 22% of total non-oil GDP of Dubai. About 40% of Photo by Al Masud Rasim the UAE’s banks have concentrated their Dubai skyliine - Just about every building is under conbusiness in the real estate sector.
struction. On the left is Burj Dubai, the tallest building
One of the prime drivers of UAE’s in the world. property boom has been the persistent borrowings. According to Colliers Internationnegative interest rate for over a decade. As the UAE’s official currency, Dirham, is pegged al, between 2003 and 2007, new villa prices into the Greenback at 3.6725 per US$ since 1997, creased 226 percent while the apartment prices the interest rates in UAE have reflected the doubled. This stimulated the investors to levermonetary policy followed by the U.S. Federal age heavily and invest in the property market. Reserve. Meanwhile between 1990 and 2008, Even for the ultra-rich local population, investDubai’s GDP grew at an annual compounded ing their equity in local real estate was considgrowth rate of 11.28% (The National Media ered unsavvy. Council). This fed on to the prices of consumer Credit was not just cheap but also easgoods and the inflation was in excess of 10% ily available. Dubai’s population in 2008 was during this period. IMF predicted UAE’s an- estimated at 1.47 million of which 80% was nual inflation to be at 12.88% for 2008. How- expatriates (based on the 2006 census). About ever IMF had expressed concern in 2006 that half of the expatriate population was laborers UAE, unlike most other countries, did not have who migrated to work in construction and sera proper system of monitoring consumer prices. vices companies. Therefore it left a very small It also criticized that the percentage of rental potential client base for the 23 local banks and expenditure in calculating inflation is unreal- another two dozen international banks functionistically low. The popular investment banks in ing in the Emirate. In their interest to compete, the region peg the annual inflation in Dubai and the banks offered loans at extremely attractive Abu Dhabi at about 20%. The average nomi- terms. They financed up to 90-95% of the value nal interest rate of mortgages was at 7.5% in of the property. Banks even extended special 2008. With inflation at 20% and interest rates Shariah-compliant loan schemes whereby the near 7%, there has been significantly large dou- borrower would start paying installments only ble-digit negative real interest rates during the on actual possession of the property. (A Shariah last decade. This large real negative interest rate compliant loan is one that is structured strictly carry has discouraged savings and encouraged in accordance with the requirements of IslamGlobal Economist Review
March 16, 2009
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the global slowdown affected the UAE economy and Dubai economy specifically. As the ... foreigners banks were hit by pulled out their international write-offs emanating out of the deposits from sub-prime losses and the interthe UAE banks national investors too were feeling jittery about investments of severely affect- any kind, this flow of funds into ing the liquidity UAE stopped abruptly. Most of Leverage is the prime condition. Credit these foreigners pulled out their deposits from the UAE banks means of growth not just in the real estate sector but for the en- expansion in UAE severely affecting the liquidity condition. Credit expansion in tire economy. Long periods of slowed ... UAE slowed down. Foreign insustained negative real interest vestors represent a major market rates has discouraged deposits for the high-end luxury properand the total bank credit to total deposits ratio was at 1.08 in 2008. According to the annual ties segment in which Dubai has built a name report of the Central Bank, this ratio increased within the international elite. As these investors to 1.12 in January 2009. This means banks are piled up losses in their property and equity inlending out more than they are taking in depos- vestments in the US and Europe, they began to its from the customers. The banks are bridging sell off their property investments in Dubai in this gap through their foreign liabilities. The their search for liquidity. This along with the difference between foreign assets and foreign negative sentiment about an impending slowliabilities was at down in line with the western world stopped a surplus of about the practice of ‘flipping’. Flipping is the proUS$18 billion in cess whereby an investor who has made the ini2000. It steadily de- tial down-payment through a bank loan and has pleted through the entered into an agreement to buy a property still years and reached under construction sells the property within 2-3 a deficit of US$28 months of buying, thereby extinguishing his billion in 2008. In impending liability. When the property prices other words, of all were rising at the rate of 5-6% a month, the inthe bank credit be- vestors, encouraged by the hundreds of proptween 2000 and erty middle-men in Dubai, embarked on ruth2008, 22%, has less flipping which inflated the property prices been funded by for- almost on a daily basis. This created a large eigners (The Cen- secondary market for un-built and half-built tral Bank of UAE). properties. As flipping stopped, following the These funds rep- drying up of fresh credit from banks, the property market came to a standstill. Also, analysts Photo by Al Masud Rasim resent the conduit through which from Morgan Stanley et al. predicted a lack of demand for the huge supply of houses from the burj al arab hotel -Dubai ic law). Since the Central Bank of UAE does not present data for each Emirate separately, the national data has to be seen as a proxy for data on Dubai. Between 2000 and 2008, the gross bank credit of UAE grew at a compounded average of 10.32%, according to The Central Bank of UAE.
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to ease concerns of default and narrowed the One of the major problems with Dubai spreads on CDS of Dubai’s government-owned financing its growth through debt is that almost companies. Even though the corporate and individuall of these investments are very long-term in nature. The money has been used in financing al defaults on mortgage loans are on an increasconstruction of mega infrastructure projects or ing course, the chatter of Dubai Government’s acquisition of companies with their long-term default seems to have subsided for now. The profitability as the criterion. The companies popular opinion is that Dubai, by virtue of beowned by the Dubai Government which in turn ing in a position to be bailed-out may have to hold these debts have been downgraded be- subject itself to the supremacy of Abu Dhabi cause of increasing concerns about their abil- in the days to come. The problem of Dubai has ity to service the debts acquired in a period of been that of a real estate bubble blown to exrising interest rates. These companies hoped travagant size by availability of easy, cheap and to meet their debt obligations through another poor quality credit for a long time. Even though round of fresh credit. However when global li- this problem is not unique to Dubai, the fact quidity dried up, these companies had problems that this sector contributes a major chunk to refinancing their debt obligations. Finally on Dubai’s GDP puts Dubai’s economy in a very 23rd February 2009, the Central Bank of UAE vulnerable position. With more debt obligations under the direction of the Abu Dhabi govern- falling due this year, Dubai may have to rely on ment subscribed to $10 billion worth of bonds its better-off neighbor for survival. GER issued by the Dubai government. This helped mega construction projects.
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What Happened To All the Money? By Tim LuCarelli
The stock market is down, home values are down, banks have gone out of business and many businesses have closed their doors; so, where did all the money go that supported these assets? It is like all the money just disappeared! Did it evaporate? Not really. In the 1940’s classic “It’s a Wonderful Life” James Stewart’s character, George Bailey, jumps up on the counter of his savings and loan while everyone is trying to withdraw all their money and says: No, but you . . . you . . . you’re thinking of this place all wrong. As if I had the money back in a safe. The money’s not here.
off their books. The bank took the loss against their income thus reducing their income and cash flow. They were no longer collecting the monthly payment and consequently collected less money in revenues. Homes in the surrounding area were worth less because the bank’s sale reduced the comparable housing prices; people who tried to sell their homes after this sale had to reduce their price to compare to the bank’s sale otherwise no one would buy their home. More people lost their jobs, took a pay cut or just could no longer afford their loans. A chain reaction had started. The money that was loaned now became nothing more than smoke and mirrors.
Your money’s in Joe’s house . . . (to one of the men)
Money used by Joe and Betty homeowner to purchase their home was used by the builder to put a down payment on yet another piece of And in the Kennedy house, and Mrs. property with yet another loan. So, the $20,000 Macklin’s house, and a hundred others. that Joe and Betty used as their down payment Why, you’re lending them the money to provided $200,000 (Joe and Betty’s bank paid build, and then, they’re going to pay it the builder the price of the home) in capital for back to you as best they can. the builder to go out and borrow $2,000,000. Now what are you going to do? That $2,000,000 provided numerous subcontractors to go out and borrow $20,000,000 to Foreclose on them? While this is only a line from a movie it is cer- expand their businesses. When those first banks tainly most appropriate for the times and alludes foreclosed and sold those houses the only real money was the original $20,000. Hundreds of to how money has evaporated. millions, even billions, had been created from What has happened? The world, not just essentially nothing. Implosion was imminent. the U.S, had a large increase of credit, borrowed To answer the question, what happened money; China, Europe, the U.S and everywhere in between. When one person could not pay to all the money? It was never there in the first their mortgage the bank foreclosed and sold place. Who is to blame? Everybody! Who GER that foreclosure at a discounted price to get it loses? Everybody! . . . right next to yours.
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Investment Markets
“The financial markets generally are unpredictable. So that one has to have different scenarios... The idea that you can actually predict what’s going to happen contradicts my way of looking at the market. “ George Soros
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Technician’s Corner By Frank McGuire
Crude Oil - $100 per Barrel or $10 per Barrel – Where Does it Trade From Here? Prior to 1973 crude oil prices were fairly back 60 years (red line) and matched the CPI stable with price increases matching that of in- index (green line) to illustrate crude’s pricing in flation. Over a 60 year period inflation, as mea- relation to the average inflation rate. The pricsured by the Consumer Price Index (CPI), has ing used is the average yearly crude price as well as the yearly average CPI number increased 3.71% on a yearly average, whereas crude prices have OPEC produces (not the percentage change). increased 7.22% on a yearly avin mind that the about 40% of rate ofKeeping erage outstripping inflation by inflation also includes the almost double. the world’s oil price of crude – in a round-about OPEC produces about and holds an es- way – crude oil has traded consistently above inflation for over 40% of the world’s oil and holds timated 75% of 35 years. That being said, we can an estimated 75% of the world’s oil reserves. In 1973 OPEC cut the world’s oil graphically see that crude is still far above the average inflation production and slowed shipreserves. rate. Does this mean that crude ments of crude oil to Europe and will drop in price to meet the inthe United States; the reasons are not as important as the effect on pricing. What flation rate? At some point crude pricing will is important is during the price run up crude oil align with prices of all goods and services. developed a new trading base exceeding norSince crude supplies are set by an olimal inflation. Pricing was no longer freely dic- gopoly cartel in an attempt to control pricing, tated by market supply and demand but by ar- price volatility is high and will remain high. If tificial supply shortages and perceived demand OPEC producers were allowed to sell as much increases. For seven years, between 1973 and as they could produce or needed to produce, 1980, crude oil prices rose, hitting an astound- price volatility would be substantially less and ing $40 per barrel. Then, by the mid to late pricing more in line with inflation. eighties crude prices fell back to the $10 to $25 Technically, we look at the crude chart per barrel range and stayed in that range until 2000. Since 2000 the price has escalated to and can clearly see crude traded between $10 $147 per barrel and back down to between $34 and $25 per barrel from the mid-eighties to the year 2000. The range between approximately and $48 per barrel. $10 per barrel and $25 per barrel (remember I have included a chart of crude going the chart depicts average yearly prices) was still Global Economist Review
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above the rate of inflation, but with less severity. Technically crude should still be trading in that range, albeit at the upper end of that range, but still half of where it currently trades today. Because of the volatility and supply manipulation, it would not be surprising to see crude fall as low as $10 per barrel. There are rumors that oil companies in the U.S., Europe and Asia are stock pilling crude in parked tankers and various other storage facilities not tracked in the weekly/monthly crude stock reports. Their purpose for this behavior is to keep prices high with the hopes that demand will come roaring back and they would then be able to sell a lot of crude at much higher prices.
Technically crude should be trading in the $20 to $22 per barrel range. This is the upper end of it’s historical trading range and in line with long term inflation. One could even make a case that the $20 to $22 per barrel range should be the commodity’s equilibrium price range. Being as it is a long term technical point does not mean that it cannot trade lower than this range; down to the $10 level. Markets seem to always over-shoot their mark, especially when they have had extremes in the opposite direction. I will stick with the technicals; my bet is crude will trade at $10 per barrel long before it ever trades at $100 per barrel. GER
100 90 80 70 60 50 40 30 20 10 0 1949
1959
1969
1979
1989
1999
2009
Consumer Price Index (CPI) data from Bureau of Labor Statistics Chart created in Excel
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March 2, 2009
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Political Influences
“In politics it is necessary either to betray one’s country or the electorate. I prefer to betray the electorate.” Charles de Gaulle
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States Wrangle with Washington over Stimulus Spending By Steve Evans
In the 1990 black comedy “Daddy’s Dyin’, Who’s Got the Will?” a squabbling family fights over an inheritance as their father fights for his life in a hospital bed. That might be an apt metaphor for cash-strapped state governments, federal stimulus funds, and the struggling U.S. economy. The $787 billion stimulus package divvies up funding among the states based on population, need, and other factors that state leaders can propose as they lobby the federal government for a share of the money. Rules on spending the money are still being worked out. And loopholes have been discovered. Most states have already earmarked millions in stimulus funds for public health and education needs, and especially transportation projects, which state leaders see as a way to create jobs quickly and improve old infrastructure that impedes commerce. But almost from the moment President Barack Obama signed the stimulus bill into law, states began maneuvering among themselves and with their own municipalities over how much money each would receive, how they could spend it and, in some cases, which geographic regions would benefit. The White House has promised “unprecedented” levels of transparency and accountability in the stimulus spending.
The administration said early on that one of the most difficult challenges of the stimulus package will be to ensure the funds are spent responsibly. “If we see money being misspent, we’re going to put a stop to it,” Obama told the gathering. He also threatened to expose and vigorously publicize anyone who mismanages federal dollars or abuses the stimulus plan. The president maintains the stimulus will save or create 3.5 million jobs this year through 2010.
Biden also offered a stern warning. “Six months from now, if the verdict on this effort is that we’ve wasted the money, we built things that were unnecessary or we’ve done things that are legal but make no sense, then, folks, don’t look for any help from the federal government for a long while,” he said. Biden is coordinating oversight of the spending package. The stimulus bill allotted roughly $350 million in oversight measures, including $84 million for the creation of an oversight board. Fifteen states and the District of Columbia will share about $500 billion, which is roughly two-thirds of the stimulus money. The states are Arizona, California, Colorado, Florida, Georgia, Iowa, Illinois, Massachusetts, Michigan, Mississippi, New Jersey, New York, Ohio, Pennsylvania and Texas.
As part of that promise, Obama and Vice Presi dent Joe Biden met in Washington last week with state officials from 49 of the 50 “States have a huge responsibility in partstates (Idaho was a no-show) for a discussion on proper management of the stimulus money. nering with us to ensure that dollars spent as Global Economist Review
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part of the Recovery Act are spent wisely, with transparency and accountability,” Biden said in a statement. “Our hope for this conference is to meet face to face with the state officials and streamline this implementation process so we can get our economy running again.” Earl Devaney, chairman of the new Recovery Act Transparency and Accountability Board, was candid in his admission that the sheer size of the stimulus package means some of the money would inevitably disappear to corruption and mismanagement.
creating an auction for money originally earmarked for specific “shovel ready” transportation projects. That idea was soon axed when it was reported by news outlets. The county’s Metropolitan Transportation Agency said it plans to distribute $44 million from the federal stimulus package to the county’s 88 cities. Each would receive $500,000.
Some cities tried to sell the stimulus grants to the highest bidder, at first with the MTA’s blessing. La Habra Heights wanted Some state leaders say they will reject all to sell $500,000 in federal funds to Westlake or some of the stimulus funding because of re- Village for $310,000 cash. Westlake Village strictions on how they can spend also arranged to pick up anoththe money. In some cases, states Some cities tried er $500,000 grant for $325,000 are required to produce matchto sell the stimu- cash it would have paid to the ing funds that state leaders say city of Irwindale. But the MTA lus grants to the their thin budgets cannot aclater reversed itself in a letter and commodate. Municipal governhighest bidder, said such deals would not be alments, meanwhile, are discoverThe new directive came at first with the lowed. ing novel ways of swapping and after the grant swapping was bartering federal funds. MTA’s blessing. reported by The Pasadena StarNews. Now the only swapping Snapshots of states would be federal money for an throughout nation indicate this dickering over dollars raises doubt about equal amount of state transportation dollars. whether the administration’s goal of a speedy The California cities reportedly wanted economic recovery can be achieved under the to sell stimulus money to other cities in exexisting plan. Wheeling and dealing over stim- change for general fund dollars at discounts of ulus money continues as local governments in up to 39 percent in some cases. Once in a gensome states barter over the authorized use of eral fund, cities could have spent the money federal funds. any way they liked – which was not the Obama In California, a study by the California Administration’s intention for the stimulus Department of Finance indicates that federal package. stimulus funds will fall short of the $10 billion There is nothing in the federal bill to level the state needs to avoid $1.8 billion in prohibit a city from swapping a stimulus grant additional state income tax hikes and another – even for a lesser amount of cash. But the is$948 million in spending cuts. sue is clouded by the complexity of the stimuMeanwhile, in Los Angeles County, lus package, strict “use it or lose it” deadlines some cities had arranged to buy federal stim- for spending the funds, local interpretation of ulus funds from each other at fire-sale prices, the rules, and whether grant swapping might Page 17
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violate other federal laws outside the scope of the 2010 budget cycle, but the school must still grapple with ongoing cuts in state funding for the stimulus package. Critics observe that the practice of swap- future fiscal years. School officials said the most ping funds bears a passing resemblance to the obvious solution would be tuition hikes. securitization and sale of mortgage loans between financial institutions – a juggling of loan portfolios and the accompanying risk that resulted in the bad debt that precipitated the banking crisis.
The California situation underscores the herculean task of monitoring unprecedented sums of money and ensuring that the taxpayer funds are spent responsibly.
In Michigan, Gov. Jennifer Granholm last week presented a supplemental spending bill for part of the state’s $6.7 billion in federal aid for education. Another $847 million is earmarked for state and local road construction. But some state senators are concerned the governor’s proposed projects may not be spread equally across the state. Efforts are underway to introduce resolutions calling for equitable distribution of stimulus funds for education and infrastructure improvements throughout Michigan.
A similar battle may be brewing in Florida, where state lawmakers plan to use roughly Lawmakers in South Carolina are also half of the estimated $331 million in federal grappling with federal restrictions on spending stimulus transportation money for the southern stimulus money. State Senate Republicans are region of the state. Nevada Gov. Jim Gibbons told the presideveloping plans to accept the stimulus funds that fellow Republican Gov. Mark Sanford has dent last week that his state might reject some said he would reject. Sanford said last week he of the nearly $1.5 billion in expected federal would accept $700 million in stimulus funds stimulus funds because of matching-fund reonly if the Administration grants a waiver to quirements and other restrictions. The Republiuse the money for state debts and liabilities. can governor wrote he is concerned that federal Otherwise, the governor said he would refuse strings attached to the funds could lead to “institutionalizing programmatic expansions” that the funds. South Carolina’s Senate leaders have would lead to higher state taxes for sustaining introduced a resolution to accept the stimulus the new programs after federal funds are gone. In Texas, Democratic lawmakers and laState lawmakers across the nation have bor leaders will try to overturn Gov. Rick Perbeen quick to note that the federal stimulus dol- ry’s rejection of federal stimulus money for unlars are a one-time boost that will not offset employed state residents. Perry last week rejected $556 million of state budget cuts in subsequent years. Higher education has borne the brunt of funding cuts in stimulus money for the state’s unemployment insurance. Like his counterpart in Nevada, Permany states. In Virginia, the College of William and ry said too many strings are attached to the fedMary will receive $3.8 million in federal stimu- eral funds. funds if the governor balks.
lus money to offset a $3.9 million state cut for Global Economist Review
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The challenge for the states is how to disPage 18
tribute the funding quickly and responsibly. Dealing with vast sums of money is part of the problem, as many states have agencies that are understaffed and lack experience in managing massive budgets with multiple funding streams. Some of the stimulus grants are larger than state agencies’ annual budgets. House Speaker Nancy Pelosi (D-Calif.) said last week there are no plans for a second stimulus package until federal lawmakers gauge the results of the first. She said during her weekly press conference that a supplemental spending measure might be needed to cover the expense of fighting in Iraq and Afghanistan. Beyond that, Pelosi said,
“I know people have made suggestions that we should be ready to do something, but I really would like to see this stimulus package play out.� GER
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