Greetings:

This is the seventeenth edition of the New Hampshire Progressive Newsletter for 2009.

In this issue:

Item 1: House and Senate negotiators have reached a budget deal. There will be no slot machines, no estate tax, no capital gains tax, no gas tax increase. The meals and rooms tax will go from 8% to 9%, the cigarette tax will increase another 45 cents a pack, and the auto registration fee will increase $30. $25 million will be cut from the state payroll, but how to do that will be left to the Governor.

Item 2: As Congress looks for ways to pay for universal health insurance, the President is pressured to tax health benefits, despite his campaign promise not to.

Item 3: Paul Krugman finds the financial regulation plan of the Obama administration to be lacking. He argues for limits on executive compensation, which has been structured in a way that encourages executives to take big risks with other people’s money. He also argues the plan is short on measures to reform the rating agencies, which routinely rated subprime mortgage securities as low risk.

Item 4: The US Supreme Court says there is no constitutional right to a DNA test to prove your innocence, if you’ve already been found guilty.

Mark Fernald

Item 1: Published: Saturday, June 20, 2009
$11b budget relies on cuts, state layoffs
By LAUREN R. DORGAN Concord Monitor

In the wee hours yesterday, the lawmakers charged with crafting the 2010-11 state budget finished a roughly $11.5 billion plan that involves laying off scores of state employees, nearly quadrupling the number of privately run liquor stores in the state, increasing a slew of fines and fees and shuttering the Laconia prison, the Tobey School and the New London District Court.

The plan goes for a final vote Wednesday in the Democratically controlled Senate and House, where the margins will likely be tight; one key Senate Democrat, Lou D'Allesandro, has vowed to vote against the budget, saying he won't vote for a budget that doesn't include expanded gambling. If passed, the budget goes into effect July 1. Most recent budget headlines have concerned what didn't go into the budget, not what did. Out was D'Allesandro's Senate-backed plan to permit – and tax – 13,000 video slot machines at racetracks and North Country slot parlors. House negotiators rejected that. Out, too, were two House-backed proposed taxes on the wealthy, on capital gains and on estates worth more than $2 million, along with a plan to raise the gas tax 15 cents. Senate negotiators rejected all three of those.

Other late-breaking tax ideas floated by the governor's office and legislative leaders never saw the light of day, including a potential tax on refinanced mortgages or an "entertainment tax" of 9 percent on movie, concert and raceway tickets. Each idea drew howls from the businesses and individuals affected.

Instead, budget-crafters relied on a patchwork of federal stimulus money, deep cuts and tax extensions to patch the estimated $500 million budget gap between spending and revenue trends, as the recession has caused state revenues to sink and needs to soar. Meanwhile, requirements placed on federal stimulus money tied budget writers' hands from tinkering much with either Medicaid or education "adequacy" grants, limiting the state's choices.

Somewhere around 1 a.m. Friday, conferees finalized the budget, but no one celebrated.

" We are all sad," House Finance Committee Chairwoman said Marjorie Smith, D-Durham. "We're sad about the plight that many of our citizens are facing. We're sad about the difficult choices we've had to make."

Several prominent state programs faced cuts. The Land and Community Heritage Investment Program got about three-quarters of its original revenue over two years, or somewhere around $3 million. The Commission on the Status of Women got about a quarter of its old budget, or about $62,000. State employees are among the most dramatically affected by the budget.

At the eleventh hour, lawmakers trimmed $25 million from the state's personnel budget, to be made up through layoffs or otherwise, and urged Gov. John Lynch to negotiate furloughs with the state unions. (The Legislature can't mandate furloughs.) In real terms, $25 million equates to laying off 750 employees or, lawmakers estimated, furloughing every nonessential employee for 14 days.

Shortly after, lawmakers also voted to suspend "bumping rights" of state employees, a union-prized seniority protection that allows more senior employees who are pink-slipped to "bump" more junior employees out of their jobs. The State Employees Association has already threatened to sue.

Lynch legal counsel Michael Delaney was on hand early this morning to make the case against bumping, telling lawmakers that "bumping causes unrest and upheaval throughout state agencies" and would force the state to make additional layoffs in order to attain the same cost savings. "We've never dealt with the levels of layoffs that we're dealing with in this budget period," Delaney said.

State Employees Association Vice President Diana Lacey said yesterday that the union had already offered voluntary furloughs as part of ongoing contract talks as part of a total package they estimated to be worth $58 million. She said the union was "disappointed" in Lynch and the Legislature.

" None of us can recall ever being subject to the attacks that we have been attacked at under the current administration and the Legislature," she said, "going after our pay, going after our rights, going after our health care, closing work sites."

Senate President Sylvia Larsen said the personnel cuts, in particular, were painful for her to support. But she said with many families in economic pain, this budget doesn't levy burdensome new taxes.

She was proud that the budget – with a little help from the federal government – includes full funding for an education-funding plan that costs $123 million more than the current one but that lawmakers say is the first to meet the state's court-mandated requirement to fund an adequate education. She also praised a new "community corrections" program, aimed at stepping up counseling for those coming out of prison or those at risk of going into prison. Lawmakers hope the program will help pare the state's recidivism rate.

" This, in a very difficult time, has no across-the-board new tax. It is a budget that meets the basic needs and invests in our future," Larsen said. She said the plan "keeps an eye on the future but also keeps an eye on the bottom line."

Here's a look at some of the budget's wide-reaching impact on communities and state agencies:
* Drivers: New Hampshire residents would pay a lot more for the privilege of registering their vehicles. Budget negotiators opted to up registration fees to fill the state's near-broke Highway Fund; they scrapped the House plan to raise the gas tax by 15 cents and the Senate plan to tap into tollbooths to pay for repairs to non-tolled highways. The plan they passed tacks a $30 surcharge onto the cost of registering a vehicle that weighs less than 5,000 pounds and progressively more for greater weights. Motorcycle registration fees would rise from $10 to $25. Meanwhile, the cost of a driver's license would rise $10, from $50 to $60.
* Prisons: The budget calls for dramatic overhauls to the prison system. The Laconia prison closes in July; many inmates have already moved to Berlin. About 40 prison employees in total will be laid off. Meanwhile, the department is creating a department of community corrections, which will allow the state to bolster services for those leaving prison or those at risk of coming back.
* Restaurants, hotels and campgrounds: Buying a meal or renting a room in New Hampshire would get a little pricier, with the rooms-and-meals tax increasing from 8 to 9 percent. The tax would also be extended to campgrounds.
* Charter schools: Students at the state's 11 charter schools will not be hugely affected by the budget, which maintains the extra $2,000 per-charter-pupil payment approved by the Legislature last year and does not cap the overall number of charter students, as some lawmakers had hoped to do. (Legislators were stymied by fear that doing so would put the state at risk of losing federal stimulus money.) However, the Department of Education did strike a deal with the Virtual Learning Academy that the fast-growing online school would charge the state for no more than 500 pupils in fiscal 2010 and no more than 580 students in fiscal 2011.
* Tobacco taxes: Smokers will soon pay a lot more for a pack of cigarettes. Negotiators settled on a 45-cent tax increase favored by the Senate, bringing the total tax rate to $1.78 per pack. New Hampshire's tax on smokes is still the lowest in New England but far above the national average of around $1.27 a pack, according to statistics compiled by the Campaign for Tobacco-Free Kids. Meanwhile, Cheap cigars will come in under the same tax hike as cigarettes. (Cigars that wholesale for more than $2 apiece will be exempt.)
* Liquor stores: The Liquor Commission won new freedom to operate as an "enterprise fund" and to shift up to 5 percent of its budget, changes Lynch said were necessary for the state's liquor stores to run "like a business." Negotiators granted the commission permission to open as many as eight new privately run "agency stores" through contracts with grocers or others, with some restrictions. But negotiators also moved to strip move liquor enforcement functions from the Liquor Commission to the Department of Safety.
* Judicial branch: The judicial branch was spared a $2 million additional cut backed by the Senate negotiators – but instead faced about a $1 million cut. At the $2 million-cut level, Chief Justice John Broderick had asked the governor to leave vacant five of the state's current judicial vacancies.
* Sundry fees: Boaters, gun-stashers and vanity plate owners are just a few of the folks who will pay higher fines and fees. Negotiators decided to double the costs of registering both private and commercial boats, from, depending on length, $12-$46 to $24-92. The higher rates sunset in 2015. Out-of-staters who want a state permit to carry a concealed pistol will pay a lot more for the privilege, which will cost $100 for four years instead of $20 after negotiators voted to quintuple the fee. Specialized license plates will get a lot pricier, after the negotiators decided to increase the cost of a vanity plate from $25 to $40.
* Medical malpractice money: Doctors who've bought malpractice insurance through a state-established pool will likely not see the $110 million surplus that the Joint Underwriting Association has built up through the year. Budget negotiators voted to raid that surplus; however, a group of doctors and medical practices filed suit last week, so the fight may not be over.
* Roughly 15 Allenstown families whose homes were badly damaged two years ago during the Mothers Day Floods will get $650,000 from the state towards a federal grant that will buy up their homes and allow them to move on, under a plan set up by the negotiators. * Developmentally disabled adults on the wait list for state services will get about $18 million worth of help; Lynch's original budget plan had not budgeted for the program.

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Item 2: Obama Is Pressed to Tax Health Benefits
Seeking GOP Votes, Democrats Split Over Plan for New Levy

By Lori Montgomery and Ceci Connolly?Washington Post Staff Writers?Monday, June 15, 2009
The White House is caught in a battle within its own party over how to finance a comprehensive overhaul of America's health-care system, as key Democrats advocate a tax plan that could require President Obama to break his campaign pledge not to raise taxes on the middle class.

Sensitive to voter anxiety about a soaring federal deficit, Obama and congressional leaders have vowed to pay for a sweeping expansion of the health-care system -- expected to cost more than $1 trillion over the next decade -- without additional borrowing.

Much of the money is likely to come from reining in spending on federal health programs for the elderly and the poor. Obama has proposed trimming more than $600 billion from Medicare and Medicaid by 2019 -- including more than $300 billion in cuts unveiled in his Saturday radio and Internet address -- which could fulfill the promise to curb the growth of federal health spending.

The rest of the cash will probably come from new taxes. But Democrats are deeply divided over which taxes to raise, and the issue has become a central stumbling block in the push to enact legislation by fall.
In recent days, Obama has revived a tax plan he first offered in February: limiting itemized deductions for the nation's 3 million highest earners. Polls show that the idea is popular -- it was Obama's biggest applause line last week at an event in Wisconsin -- and it would enable him to abide by a campaign pledge to pay for coverage for the uninsured with new taxes on the rich.

" He believes this is the most equitable way to do this," said senior White House strategist David Axelrod. "It places the burden on people who can most afford it."

But many Democrats, particularly in the Senate, have balked at the idea, saying they prefer a tax that has some hope of winning Republican support. In legislation that could be unveiled as early as this week, Senate Finance Committee Chairman Max Baucus (D-Mont.) is expected to propose a new tax on the health benefits that millions of Americans currently receive tax-free through employers.

Economists say taxing employer-sponsored benefits would help trim runaway health costs and force society to broadly share the burdens of reform. The idea also has bipartisan appeal. Former president George W. Bush and Sen. John McCain (Ariz.), the 2008 GOP presidential candidate, championed a form of the tax; so did Obama advisers Jason Furman and Ezekiel Emanuel before they joined the administration.

" The Democrats are trying to figure out whether they can do health-care reform by themselves without Republicans, or whether they need to adopt some Republican ideas to get a health-care plan," said Chris Edwards, director of tax policy at the libertarian Cato Institute. Taxing health benefits "could be the center of a bipartisan agreement," he said.

But political analysts say the idea is treacherous, especially for Obama. Baucus is considering a tax on employer-sponsored premiums in excess of $15,000 a year, Senate aides said, a plan that would strike many of the very families Obama has vowed to protect from a tax increase. Yesterday, top administration officials pushed back forcefully against the tax, which Obama criticized during the campaign.

" The president starts with the premise that 180 million Americans have health coverage through their employer, that attacks on those benefits may dismantle that marketplace," Health and Human Services Secretary Kathleen Sebelius said on CNN.

Two-thirds of Americans under age 65 get coverage through an employer -- more than 158 million people, according to the Kaiser Family Foundation. In 2008, only about one in five employer-sponsored plans carried the high premiums likely to be hit by the tax.

But research shows that those people tend not to be wealthy highfliers with gold-plated insurance plans, as advocates assert, but those who have to pay high premiums just for basic coverage -- the old, the sick, women of childbearing age and residents of high-cost urban areas. Elise Gould, director of health policy research at the liberal Economic Policy Institute, found that a similar cap suggested by a 2005 tax reform panel would have raised taxes mainly on workers with family coverage, many of them in smaller firms with high concentrations of older, female or unionized workers.

Labor leaders, who have for years chosen better health benefits over higher wages in contract negotiations, call the tax a deal-killer. "It has the capacity to really undermine trust in a basic kind of way," said Gerald Shea, assistant to the president of the AFL-CIO. "If you say you really, really want to help out the middle class, what are you doing charging more for the health care that's already costing us an arm and a leg?"

It could also prove poisonous in the 2010 elections. In a recent survey for Health Care for America Now, a labor-backed reform advocacy group, Democratic pollster Celinda Lake found that 80 percent opposed a tax on benefits, compared with 63 percent support for limiting itemized deductions for high earners.
" Taxing benefits would be a disaster," Lake said. "You have no idea how strongly this is going to backfire if we do it."

Key lawmakers in the House don't particularly like either of the competing tax plans and may yet offer a third proposal. But in the Senate, the more important congressional battleground, taxing health premiums "has reached the level of a foregone conclusion," said Len Nichols, a health policy analyst at the nonpartisan New America Foundation.

Politics aside, the tax dwarfs all other current proposals as a potential cash cow. The tax-free treatment of employer-provided health insurance is the biggest loophole in the tax code and the second-largest federal health-care cost, after Medicare. Taxing half of all employer-sponsored premiums would generate nearly $1.2 trillion over the next decade, according to the nonpartisan Joint Committee on Taxation, compared with about $270 billion for new limits on itemized deductions for the rich.

Advocates say taxing benefits also makes good economic sense. The rewards of the current tax break fall heavily to the wealthy, and there is no similar tax break for workers who must buy insurance on their own. Many economists also dislike it because it encourages workers to take compensation in the form of health care instead of higher wages, pushing resources into the health system and increasing costs.

" Even in the absence of wanting the money, you'd want to do it," said MIT economist Jonathan Gruber.
Senate Democrats have been considering two options. The first would be to tax premiums above a certain level, such as the value of the standard family plan offered to federal employees, which will be about $15,000 in 2013, Senate aides said. That would raise about $420 billion over 10 years. The other option would be to apply the cap only to families earning more than $200,000 a year ($100,000 for
individuals), which would raise about $160 billion over 10 years.

A senior Baucus aide said the committee is leaning toward the former option, which would do more to "bend the curve" of soaring health costs.

In either case, workers would see any insurance premiums in excess of the cap added to their wages and taxed as income. That could increase their tax bills by hundreds or thousands of dollars a year, said Paul Fronstin, director of health research at the nonprofit Employee Benefit Research Institute.

The Baucus aide stressed that the goal of reform is to lower premiums for everyone. But the White House is clearly not convinced.

" There is still a great deal of disagreement," Sebelius said, "on whether or not taxing benefits at any level of any kind really does put us a step forward or take us a step back."

Polling analyst Jennifer Agiesta contributed to this report.

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Item 3: June 19, 2009
OP-ED COLUMNIST
Out of the Shadows
By PAUL KRUGMAN

Would the Obama administration’s plan for financial reform do what has to be done? Yes and no.
Yes, the plan would plug some big holes in regulation. But as described, it wouldn’t end the skewed incentives that made the current crisis inevitable.

Let’s start with the good news.

Our current system of financial regulation dates back to a time when everything that functioned as a bank looked like a bank. As long as you regulated big marble buildings with rows of tellers, you pretty much had things nailed down.

But today you don’t have to look like a bank to be a bank. As Tim Geithner, the Treasury secretary, put it in a widely cited speech last summer, banking is anything that involves financing “long-term risky and relatively illiquid assets” with “very short-term liabilities.” Cases in point: Bear Stearns and Lehman, both of which financed large investments in risky securities primarily with short-term borrowing.
And as Mr. Geithner pointed out, by 2007 more than half of America’s banking, in this sense, was being handled by a “parallel financial system” — others call it “shadow banking” — of largely unregulated institutions. These non-bank banks, he ruefully noted, were “vulnerable to a classic type of run, but without the protections such as deposit insurance that the banking system has in place to reduce such risks.”

When Lehman fell, we learned just how vulnerable shadow banking was: a global run on the system brought the world economy to its knees.

One thing financial reform must do, then, is bring non-bank banking out of the shadows.
The Obama plan does this by giving the Federal Reserve the power to regulate any large financial institution it deems “systemically important” — that is, able to create havoc if it fails — whether or not that institution is a traditional bank. Such institutions would be required to hold relatively large amounts of capital to cover possible losses, relatively large amounts of cash to cover possible demands from creditors, and so on.

And the government would have the authority to seize such institutions if they appear insolvent — the kind of power that the Federal Deposit Insurance Corporation already has with regard to traditional banks, but that has been lacking with regard to institutions like Lehman or A.I.G.

Good stuff. But what about the broader problem of financial excess?

President Obama’s speech outlining the financial plan described the underlying problem very well. Wall Street developed a “culture of irresponsibility,” the president said. Lenders didn’t hold on to their loans, but instead sold them off to be repackaged into securities, which in turn were sold to investors who didn’t understand what they were buying. “Meanwhile,” he said, “executive compensation — unmoored from long-term performance or even reality — rewarded recklessness rather than responsibility.”

Unfortunately, the plan as released doesn’t live up to the diagnosis.

True, the proposed new Consumer Financial Protection Agency would help control abusive lending. And the proposal that lenders be required to hold on to 5 percent of their loans, rather than selling everything off to be repackaged, would provide some incentive to lend responsibly.

But 5 percent isn’t enough to deter much risky lending, given the huge rewards to financial executives who book short-term profits. So what should be done about those rewards?

Tellingly, the administration’s executive summary of its proposals highlights “compensation practices” as a key cause of the crisis, but then fails to say anything about addressing those practices. The long-form version says more, but what it says — “Federal regulators should issue standards and guidelines to better align executive compensation practices of financial firms with long-term shareholder value” — is a description of what should happen, rather than a plan to make it happen.

Furthermore, the plan says very little of substance about reforming the rating agencies, whose willingness to give a seal of approval to dubious securities played an important role in creating the mess we’re in.
In short, Mr. Obama has a clear vision of what went wrong, but aside from regulating shadow banking — no small thing, to be sure — his plan basically punts on the question of how to keep it from happening all over again, pushing the hard decisions off to future regulators.

I’m aware of the political realities: getting financial reform through Congress won’t be easy. And even as it stands the Obama plan would be a lot better than nothing.

But to live up to its own analysis, the Obama administration needs to come down harder on the rating agencies and, even more important, get much more specific about reforming the way bankers are paid.

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Item 4: Supreme Court Rules DNA Tests for Prisoners Not a Constitutional Right
Thursday 18 June 2009
by: David G. Savage | Visit article original @ The Los Angeles Times

Washington - The Supreme Court said today that DNA possesses a unique ability to free the innocent and convict the guilty, but the justices nonetheless ruled that prisoners do not have a constitutional right to demand DNA testing of evidence that remains in police files.
In a 5-4 ruling, the court's conservative bloc agreed to stand back and allow states to work out the rules for new testing of old crime samples.
Already, 47 states and the federal government have enacted laws or rules that allow prisoners under some circumstances to obtain DNA tests, the high court said.
Chief Justice John G. Roberts Jr. said the majority saw no need for "a freestanding and far-reaching constitutional right of access to this type of evidence." Upholding such a new right "would take the development of rules and procedures in this area of out of the hands of legislatures and state courts shaping policy in a focused manner and turn it over to federal courts," he said.

While Roberts stressed the virtues of judicial restraint, the dissenters said the court was abdicating its duty to seek justice.

Alaska does not give prisoners a right to obtain DNA testing, and William Osborne, a convicted rapist, belatedly sought testing of a semen sample. He and another man were accused of abducting a prostitute near Anchorage, beating her and leaving her nearly dead in the snow. She survived and identified Osborne as her attacker.

His lawyer did not seek DNA testing during his trial, but he sued to obtain the tests after his conviction. He even offered to pay for the test.
Osborne won in the U.S. 9th Circuit Court of Appeals, but lost in the Supreme Court today.

Justice John Paul Stevens, in dissent, said Alaska has the evidence that "will conclusively establish" whether Osborne committed the rape.
"If he did, justice has been served by his conviction and sentence," Stevens wrote. "If not, Osborne has needlessly spent decades behind bars while the true culprit has not been brought to justice."

Stevens said the prisoner in this situation has a right to "test the evidence at his own expense and to thereby ascertain the truth once and for all."
Justices Ruth Bader Ginsburg, David H. Souter and Stephen G. Breyer joined in dissent.

Besides Alaska, only Massachusetts and Oklahoma have not decreed by law that at least some convicted inmates can obtain DNA testing.
The Innocence Project in New York says 232 people have been freed from prison through DNA testing.