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By Scott Pinkelman Philadelphia Budget Crunchers http://budgetcrunchers.wordpress.com. The Global Financial Crisis and Municipal Budget Crises: Philadelphia and Trenton. What is happening? Is The Economy In Crisis?. Will Obama Fix The Economy?.
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By Scott Pinkelman Philadelphia Budget Crunchers http://budgetcrunchers.wordpress.com The Global Financial Crisisand Municipal Budget Crises:Philadelphia and Trenton
Capitalism • An economic system with private ownership and profit. • Profit - Money or wealth that is more than the costs of production and is paid to the owner or investor.
Finance • The field of financing business by providing credit • Bankers, brokers, traders, etc.
Root Causes • Stagnation • Financialization • Deregulation
Stagnation • Early 1970s: End of ‘Keynesianism’ • Deindustrialization • Declining Wages • Stagnation • 1978-2008: Industrial utilization: 81% • 2003-2008: Industrial utilization at 77% • Post 2001 ‘jobless recovery’
Financial Sector Debt • 1973: Total Debt 140% of GDP • Financial Sector: 9.7% • 1989: Total Debt 234% of GDP • Financial Sector: 18.7% • 2005: Total Debt 329% of GDP • Financial Sector: 31.5%
Deregulation • 1999-2000 • Repeal of Glass-Steagel Act • Commodity Futures Modernization Act • Securities
Recent Causes • Post 2001 Federal Reserve Interest Rates • Speculative Real Estate Bubble • Rise in home prices after 2001 • Second mortgages • The rise of 'subprime' mortgages
Timeline2007-08 • March 2007: Mortgage companies begin to seek to sell subprime lending arms • August 6, 2007: American Home Mortgages files for bankruptcy • August 10, 2007: LIBOR sets .5% higher • August 17, 2007: Federal Reserve cuts discount rate by .5%
Timeline Sept. 2008 • Sept 6 - Fannie Mae and Freddie Mac placed under government conservatorship • Sept 14 - Federal Reserve decides to let investment bank Lehman Brothers Fall • Sept 14 - Merril Lynch sold to Bank of America • Sept 16 - Federal Reserve ‘liquidity injections’ into money market funds • September 21 - Investment banks Goldman Sachs and Morgan Stanley become ‘bank holding companies' • Sept 19 – Troubled Asset Relief Program (TARP) Bailout Announced
Bailout • Officially $700 billion • With loan guarantees: up to $8.56 trillion • Video • Massive outcry; initially voted down in the House • 'Largest transfer of wealth from taxpayers to stockholders in history'
What's it being used for? • Given to get banks lending to one another • No stipulations / little oversight • $18 billion in Wall St. bonuses • Bank of America: Lobbying against the Employee Free Choice Act • Bank Consolidation • 4 superbanks: Bank of America, JP Morgan Chase, Citigroup, Wells Fargo
Philly Budget Crisis • City Budget $4.03 Bn annually • Nov 2008: $1 billion deficit over 5 years • Jan 15, 2009: Projected deficit raised to $2 billion • $108.1 million in cuts by 2009
Causes • 5 year Shortfalls In: • Pension Fund: est $498 million decline • BusinessTax: $119 million (down $33m from last year) • Real Estate Transfer Tax: dropped 37.3% 158m • Property Tax: $180 m less
Pension • Pension Fund has lost 22% as of mid January • Covering these losses will cost the city $359 million • Unable to issue bonds 5 year bonds - $140 million to defer pension payments • Pensions cost 252 million in 1998 – will cost est. 613 million in 2012
FY 2010 Budget • Temporary increases in sales and property taxes • Two-tier pension plan with municipal union • Sliding scale at health centers
Trenton • FY 2010 New Jersey Shortfall • 100 million • Gov Corzine’s proposal to allow municipal gov’ts pension contribution deferrals • 6.8 million in Trenton • 4 million dollar shortfall
Water Sale • Sale of Trenton Water Works pipelines to NJ American Water Co • Estimated at $20 million; State allowing City to count $7.7 million to city • Estimated to help shortfalls to two years • Petition Drive to stop sale • Privatization of public infrastructure • “Sale vs. tax hikes”
Property Taxes • 29% increase in Trenton • 19% (FY 2010) followed by 14.5% (2011) in Philadelphia • Major source of revenue this budget year • Philadelphia FY2010: $9.87 cents per $100 • Trenton FY2010: $2.74 cents per $100
Global Neoliberalism • Neoliberalism • The current stage of capitalism. • Starts around the early 1970s • Public services for sale • “No borders” • Dominant ideology in economics. • “Modern Imperialism”
Structural Adjustment ProgramSAP • International Monetary Fund in the 1980s • Characteristics • Privatization • Free trade • Cutting capital controls
Philly and Trenton in Context • 'Financialized' city budgets • Dependent of stock and bond market • Only growth strategy is attracting outside companies through tax cuts or land deals • Needs of the population aren't met • More taxes, reduced services • Public services are being privatized