Some state mulling lawsuits against Wall Street firms; California might seek Washington's help.
By JERUSALEM POST STAFFschwarzenegger 224.88(photo credit: AP)
With the economy in a slide and the credit markets seized up, US states are slashing budgets, eliminating jobs, putting major construction projects on hold and nervously waiting to see whether their shriveled pension funds recover.
They are also weighing lawsuits against Wall Street firms. And at least one state - California - may ask Washington to come to the rescue.
Gov. Arnold Schwarzenegger warned he may have to beg the federal government for a short-term loan to cover operating costs for schools, nursing homes and police if the nation's most populous state is unable to borrow a short-term $7 billion on the credit market.
Dozens of states are expecting big drop-offs in revenue and dispiriting pension-fund losses, and are making another round of emergency spending cuts on top of deep cutbacks earlier in the year, when the economy began softening and the mortgage crisis started to unfold.
New York, the capital of the US financial industry, is grappling with the highest unemployment rate since the Sept. 11, 2001, terror attacks and a $1.2 billion deficit that could balloon to $2 billion by the end of the fiscal year March 31.
"We're going to have to take drastic action," Gov. David Paterson said.
In Massachusetts, Gov. Deval Patrick may ask state lawmakers for the power to make midyear cuts to close a $223 million budget gap. Massachusetts also saw its pension fund shrink by nearly $4 billion in September alone to about $46 billion.
States such as Massachusetts, Indiana, Washington, Pennsylvania and Colorado are either putting a freeze on hiring or hoping to reduce their payroll through attrition.
With tax revenue expected to fall at least $2.5 billion short of previous estimates, Virginia Gov. Tim Kaine ordered 570 layoffs, cut college funding by at least 5 percent and postponed state employee raises from next month until next summer.
Washington Gov. Chris Gregoire suspended the early stages of a program that would give employees paid family leave.
Massachusetts successfully sold $750 million in bonds to pay state bills this week, but only after twice delaying the sale because of the paralyzed credit market.
In some states, the fiscal woes have bubbled over into anger and threats of lawsuits.
West Virginia's governor has asked his staff to research possible legal action after the state suffered deep losses in pension funds with holdings in Wall Street players like AIG, Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch and Washington Mutual.
"I want somebody to pay," Gov. Joe Manchin said. "It's outrageous. We should be looking at the people who walked away with the money."
New Jersey investment chief William Clark said the state pension board is considering legal action against Lehman Brothers after the state bought about $180 million of Lehman stock in June and sold it for a loss of about $100 million.
The attorneys general and Connecticut and other states are investigating investment banks for alleged misleading and deceptive statements regarding sales of mortgage-backed securities. Connecticut also sued three of the nation's leading credit rating firms, accusing them of giving artificially low ratings to cities and towns.
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