Unemployment on the rise, Unemployment Insurance bill on the move

Last week, Colorado received yet more bad economic news about the unemployment rate rising to 7.2 percent, a 21-year high. That means there are about 200,000 Coloradans looking for work, but it does not include those who are under employed or who have given up looking for work.

On the plus side, the Senate Business Affairs Committee approved SB 247, which would make minor changes to modernize Colorado's unemployment insurance system and in turn draw down $127.5 million in federal funding.

More from the Senate Majority Office:

FACT: 57,578 people in Colorado are receiving unemployment insurance
benefits every week.

FACT: The unemployment insurance fund will fall close to insolvency near
the end of FY 09-10.

FACT: This fund is expected to hit close to $45 million near the end of FY
09-10.

FACT: SB 247 will help Colorado make small but significant changes to its
unemployment eligibility.

FACT: In doing so, SB 247 will help Colorado draw down close to $128
million in federal aid from the federal stimulus money. People in Colorado need
help when they are unemployed and Colorado needs help supporting them.

That’s why SB 247, sponsored by Senator Lois Tochtrop (D-Thornton), is so
important and that’s why it passed Business, Labor and Technology Committee
today on a vote of 5 to 1. “It is during times like these, when more and more
people are losing their jobs, we need to make sure we can help Coloradans as
best we can,” said Sen. Tochtrop. “We can do that by protecting workers who lose
their job and getting them job training to help them get a job with a future. If
we can do that by drawing down over $127 million federal money- even better.”

SB 247 will do the following things:

Adopt an Alternative Base Period (ABP) which helps low-wage workers qualify
for unemployment benefits. If a worker doesn’t qualify using the traditional
base period because he or she doesn’t have sufficient earnings in that period,
the ABP would help qualify more workers who need unemployment insurance (UI)
benefits.

Improves unemployment insurance eligibility in the following areas:
Modifies eligibility for unemployment benefits when a worker separates from a
job due to domestic violence.

Expands compelling family reason to include a worker who quits a job to
follow a spouse whose employment location has changed.

Restructures Colorado’s good cause exemption for workers who are separated
from a job to care for an ill or disabled immediate family member.

Temporary enhanced unemployment benefits for workers involved in
re-training for green jobs, high-demand occupations or more stable employment.

SB 247 will head to Senate Appropriations Committee next.

Kahnfusion: Restoring Corporate Accountability

This is one of an occasional series of posts from CCLP's Special Counsel Ed Kahn, on topics ranging from public policy to the economy to politics to the media. Enjoy:

Although attention is being paid to the question of whether the federal government shall be given the power to seize non-banking institutions should they be mis-managed while being “too big to fail”, no one, so far as I am aware, has discussed the issue of how to restore or create the kind of corporate accountability which would prevent mismanagement in the first place.

The theory of capitalist corporate governance is that management is responsible to a board of directors, who will hire and fire –exercising the power to fire if management becomes poor. But one of the failures of contemporary capitalism is that many boards are composed of cronies of management, or persons who don’t have the character or knowledge to ask penetrating questions and pull the plug when they should.

One way to try to ameliorate this problem is to require, by federal law, all corporations over a certain size to have directors appointed who represent the public interest and who are required to scrutinize management performance (and vote on the level of compensation). These public directors could be required to be paid a fixed amount by the corporation, and could even be given staff assistance, such as accountants, to help their scrutiny. They could be given access, by law, to all corporate information, including “off balance sheet” items, such as Enron had. They could be required to separately report to stockholders, and/or the Government at least annually. These directors could be selected by a combination of community representatives, consumer groups, labor unions, retired journalists, and college officials.

Implementing such a system, on a pilot basis, for five years or so, would quickly tell us whether it is possible to change corporate accountability and corporate culture away from the sheltered, irresponsible conduct that has brought the financial crisis we share.

--Ed Kahn, CCLP Special Counsel

Bonus Taxes: Constitutional or Not?

Questions remain as to whether or not it's good public policy, but if Congress moves forward with a plan for a 90% tax on bonuses from certain corporations benefiting from federal funds, would such a plan be constitutional? Citing case law, Booman Tribune says yes, the plan would be constitution, if it could be shaped as not punitive to a specific group of people.

Did the House pass an ex post facto law this afternoon when it imposed a 90% tax on bonuses for people employed by TARP-fed corporations? A lot of people seem to think so, but I think the matter was settled in 1994 with the United States v. Carlton case. In essence, the government had passed a tax law and then immediately realized that it created an unwanted loophole that would cost the government $7 billion in revenue. They passed a retroactive fix and the Supreme Court ruled that it was constitutional.

Held: The 1987 amendment's retroactive application to Carlton's 1986 transactions does not violate due process. Under the applicable standard, a tax statute's retroactive application must be supported by a legitimate legislative purpose furthered by rational means. See, e.g., Pension Benefit Guaranty Corp. v. R. A. Gray & Co., 467 U.S. 717, 729-730. Here, Congress' purpose in enacting the 1987
amendment was neither illegitimate nor arbitrary. Section 2057 was originally
intended to create an incentive for stockholders to sell their companies to their employees, but the absence of a decedent stock ownership requirement resulted in the deduction's broad availability to virtually any estate, at an estimated loss to the Government of up to $7 billion in anticipated revenues. Thus, Congress undoubtedly intended the amendment to correct what it reasonably viewed as a mistake in the original provision. There is no plausible contention that it acted with an improper motive, and its decision to prevent the unanticipated revenue loss by denying the deduction to those who made purely tax motivated stock transfers was not unreasonable. Moreover, the amendment's retroactive application is rationally related to its legitimate purpose, since Congress acted promptly in proposing the amendment within a few months of §2057's original enactment and established a modest retroactivity period that extended only slightly longer than one year.

Read more commentary on this at http://www.boomantribune.com/.

Foreclosure Assistance Moves Forward; CCLP Testifies at Senate Hearing

House Bill 1276, which provides a 90 day delay or time out in the foreclosure process for qualifying homeowners, passed the Senate Judiciary Committee yesterday on a 5-2 vote. It now goes to the Colorado Senate floor for consideration, and if passed there, goes to the Governor for signature to become law.

Ed Kahn, Colorado Center on Law and Policy's Special Counsel, testified strongly in favor of the bill. The legislation is "like an EMT who stabilizes the economically distressed patient on the way to the hospital. Here, the opportunity to negotiate is like effective treatment," Kahn said.

The bill would provid the possibility of a negotiated workout and a 90 day timeout for borrowers who have a "have a reasonable likelihood" of being able to afford a renegotiated loan. A credit counselor working with the homeowner, through the Foreclosure Hotline, would make the determination. Homeowners who are unlikely to be able to afford a workout would not be helped by the bill, but could still seek renegotiation by direct contact with the lender or the Foreclosure Hotline.

The Bill is sponsored by Rep Mark Ferrandino and Sen Morgan Carroll.

SB 228 Passes Senate; Supporters Rally at Capitol

Just minutes after SB 228 passed in Colorado State Senate by a 21-14 vote, supporters gathered in the Capitol to applaud the strong fiscal leadership of bill sponsors Sen. John Morse and Rep. Don Marostica. The important budget reform bill would get rid of an outdated budget formula, known as Arveschoug Bird or the 6 percent, and help Colorado get out of the recession quicker.

“I thank the Senate for passing the budget reform that Colorado needs now,” said Sen. Morse. “Getting rid of the 6 percent will help untie the knot, level the playing field for our state’s priorities, and help get us out of the recession quicker than we otherwise would.”

“I’m very pleased to be working with Sen. Morse on this legislation, and appreciate the Senate’s work in passing it today,” said Rep. Marostica. “It’s a very important step toward meaningful budget reform in Colorado at a time when our state needs it the most so we can have a quick, strong recovery from the recession.”

“Our state is handcuffed and our leaders are forced to make decisions based on an outdated formula – not on the needs of our children or the priorities of our citizens,” said Megan Ferland President of the Colorado Children’s Campaign. “Colorado has the fastest growing rate of child poverty in the country, but getting rid of the 6 percent formula is one way to get our state back on track and out of the recession.”

“Families adapt, businesses adapt, and it’s long past time that Colorado’s state budget adapts to get out of the worst economic crisis in two generations,” said Carol Meredith, with The Arc of Arapahoe and Douglas Counties. “SB 228 is the kind of common sense budget reform that Colorado families need now.”

“The tired, failed policies of the past are threatening to destroy the economic security, prosperity, and opportunity that this great state provides,” said Jack Wylie, with the Associated Students of Colorado. “We must invest in our students and our economic future, and SB 228 will help Colorado do exactly that.”

The bill sponsors were joined by House co-sponsor Rep. Lois Court, as well as supporters representing some of the more than 85 state and local groups that are supporting the budget reform bill.

Right now, anything over the 6 percent budget formula is automatically earmarked for transportation, preventing Colorado from making smart decisions based on key priorities and current economic needs.

SB 228 will get rid of Arveschoug-Bird and outdated earmarks, put all the state’s funding priorities on a level playing field, and help Coloradans get out of the recession quicker and stronger.

The bill will now move to the House for consideration.

Kahnfusion: Contract law says AIG need not pay bonuses

UPDATE:

Wall Street Journal, via TPM, reports a plan is in the works.

Glenn Greenwald has an excellent analysis of the issue on Salon. Likewise, a Yale Law Journal editor gives a great take here.


This is one of an occasional series of posts from CCLP's Special Counsel Ed Kahn, on topics ranging from public policy to the economy to politics to the media. Note that Ed actually drafted this post on Sunday, prior to this Associated Press report. We're not saying Ed can predict the future, but we're not saying he can't either. Enjoy:

About a year or two ago, apparently before the full adverse economic effect of derivatives was known, AIG entered into bonus retention contracts with employees in the unit which bought or sold unhedged derivative contracts – a dubious high leverage transaction. Now AIG is poised to pay, or has paid, those employees hundreds of millions of dollars in retention bonuses. Both AIG and the Obama Administration claim there is nothing they can do – they are legally bound to pay.

But they are wrong. An elementary principle of contract law allows them to void the contract or seek the money back. It is called "mutual mistake of fact." In the textbook used to teach contract law, the example is: one farmer sells to another a breeding cow. But it turns out the cow is sterile and cannot breed after all. The farmer who purchased the cow is entitled to his money back.

Take the example to AIG. AIG entered into retention bonuses on the premise that the contracts being sold by its employees would be profitable. They were disastrous. There has been a mutual mistake of fact. The contract is not enforceable. AIG need not pay or is entitled to its money back.

It's time for the Obama Administration officials and the AIG lawyers to get through a first year contracts course, or talk to someone who knows contract principles.

--Ed Kahn, CCLP Special Counsel

KCFR: A Look At Colorado's Food Stamp Backlog

Colorado Public Radio aired a story yesterday about Colorado's growing problems with the food stamp backlog. CCLP Special Counsel Ed Kahn was featured in the story, talking now just about the current economic challenges, but also about the systemic problems with benefit access in Colorado that existed long before the current recession took hold. Listen to the story here.

Kahnfusion: Mark-to-Market Meltdown

This is the first in a hopefully occasional series of posts from CCLP's Special Counsel Ed Kahn, on topics ranging from public policy to the economy to politics to the media. Enjoy:

"Mark-to-Market accounting" is much in the news, but few understand the concept. Say an oil company has reserves of 100 barrels. These cost $20 per barrel to find. You could, on the balance sheet, list them as an asset worth $2,000, or if the market price were $50 a barrel, at $10,000. Now let’s say on June 30, 2008, the market price is $150 per barrel. The mark-to-market price folks say, adjust the value to $150 (or $15,000), or perhaps the average of the market for the last three years. Some other folks might pick a lower historical value as realistic, because $150 is seen as a bubble price, but no one is talking of valuing below some long term market price. (The accounting profession has prescribed certain methods and choices to try to assure that all oil companies' assets are valued on a common basis).

Now suppose the market price goes to $10 a barrel or no one is buying all. How should the oil be valued? If "mark-to-market" applies, the $10 per barrel oil would be valued at $1,000. There would be a write-down from the latest earlier value recorded on the books, which turns into a loss on the books.

Change the oil to toxic assets, derivatives, swaps and what have you, and you have the dilemma of the accounting for the banks in a nutshell.

However, please note: if you avoid "mark-to-market" it does not make the banks sounder – something NPR asserted yesterday. It just means the banks have for this day, and perhaps forever, avoided a write-down of asset values. Avoiding mark-to-market does not improve the real value of the banks – it simply cosmetically avoids disclosing the size of the likely loss, and defers the write-down. Allowing banks to avoid write-downs does not make them healthy. It may patch temporarily a leak in the financial bottom of the sinking banks.

--Ed Kahn, CCLP Special Counsel

Unemployment rises to 6.6 percent

More troubling, though not unexpected economic news today. The state unemployment rate has risen to 6.6 percent--and it's likely to get worse before it gets better. This already eclipses the peak unemployment rate from the last recession.

We keep hearing that Colorado is "doing better" than other states and the rest of the country. Well, that's dandy, but better is not good enough. Not when 181,000 Coloradans are looking for work. And that doesn't even take into account the people who are out of work and no longer seeking work, nor the people who are underemployed or seen their hours and wages cut.

This might be a statement of the obvious, but we hope lawmakers are keeping their eyes on the ball here, and pursue improvements to accessing worker safety net services like unemployment insurance, Medicaid and food stamps, which also boost the economy. We also know it's long past time that Colorado reform the state budget, so the state isn't locked in with earmarks and formulas for one area, when we desperately need to invest in another.

Yes, SB 228, I'm talking about you...

Durango Herald Endorses SB 228

When you're right, you're right. The Durango Herald tells it like it is in an editorial endorsing SB 228, the budget reform bill that would bring more flexibility and accountability to Colorado's budget at a time when we need it most.

Budget Reform Bill Closes in on Senate approval

Late last night, despite delays and obstructionist tactics from the minority caucus, the Colorado State Senate gave preliminary approval to SB 228, which will eliminate the 6 percent General Fund appropriations provision, also known as Arveschoug-Bird. The legislation will help Colorado avoid making the current budget cuts permanent, maximize federal recovery dollars, and get the state’s economy back on track more quickly by addressing current economic realities.

"I am happy we have taken another important step towards untying Colorado's fiscal knot,” said sponsor Sen. John Morse. “Our state budget should be decided by Colorado's current economic challenges, not a 20th century appropriations formula. It's just good common sense.”

More than 70 state and local groups representing hundreds of thousands of Coloradans have thrown their support behind SB 228. The bill would put every priority—education, health care, higher education, local economic development, worker safety net services, transportation and more—on a level playing field.

“We applaud the leadership of Sen. Morse and his colleagues in the Senate Majority,” said Carol Hedges, Senior Fiscal Analyst at the Colorado Fiscal Policy Institute. “Colorado needs an accountable and responsive state budget, and that’s exactly what this budget reform bill would do.”

Critics of SB 228 offered relentless attempts to escape accountability for funding public priorities and shackle the state with more mandated formulas—proposing more than forty different spending mandates as amendments, all of which failed. Likewise, opponents of the bill sounded false alarms that repealing Arveschoug-Bird would turn Colorado into California. However, 90% of California’s state budget is out of the legislature’s hands and instead dictated and mandated by formulas, including an automatic sales tax transfer for transportation spending.

“Looking at each state priority in a vacuum is bad fiscal policy and it’s exactly how we got into the mess we’re in,” added Carol Hedges. “Handcuffing state investments and tying budget decisions to the failed policies of the past is a recipe for fiscal failure. We need to change.”

“Because Arveschoug-Bird allocates how money is spent rather than limiting how much is spent, this much needed change will not increase taxes, nor will it increase spending,” said former Colorado Supreme Court Justice Jean Dubofsky. “Since it is not a limit on spending, the General Assembly has the authority to make this change.”

If the 6% provision stays in place, federal recovery dollars will not help the state avoid cuts—just postpone them—extending the effects of the recession in Colorado. If unchanged, the 6% will keep Colorado in a recession rut even as the economy recovers, and other states are climbing out of the recession and restoring funding for schools, health care or other key needs. The 6% will force the state to permanently ratchet down investment in vital services.

The House Sponsor of the bill is Rep. Don Marostica, a member of the Joint Budget Committee.

Next, the budget reform bill will come to a final vote in the Senate.

Anti-Poverty Task Force Bill Passes House

On a bipartisan vote and with the leadership of Rep. John Kefales, HB 1064 passed the Colorado House of Representatives this morning, . The House Majority Office issued this press statement:

(DENVER) — State Representative John Kefalas (D-Fort Collins) today struck a victory for struggling families throughout Colorado. House Bill 1064, which will develop a strategic, integrated plan to reduce the number of Coloradans living in poverty by half, passed out of the House on a bipartisan 42-23 vote.

The legislation forms The Economic Opportunity Poverty Reduction Task Force, which will make smart decisions about how state policy can expand and strengthen economic opportunity. This Task Force will look at the whole picture and find where the gaps are. Its goal will be to reduce poverty in Colorado by half by 2019.

“Expanding the circle of opportunity demands a comprehensive, integrated, and strategic action plan,” said Rep. Kefalas. “The economic challenges that Coloradans face are complex and cannot be solved in isolation or by piecemeal approaches. This bill creates a driving force to achieve the targeted goal of reducing poverty by half by 2019. With more and more families living paycheck to paycheck, and local businesses suffering, we must view the problem through the lens of economic and workforce development. This Task Force will aim to reduce poverty and expand economic opportunity, and will do so in a collaborative nature between private sectors and different levels of government.”

The bill creates a 10-member Economic Opportunity Poverty Reduction Task Force, which will consist of five members from each chamber of the General Assembly. Along with creating a plan to reduce poverty in half, the Task Force will also study issues relating to poverty, nutrition programs, employment programs, and self-sufficiency. Other representatives from local governments, business and labor organizations, education organizations, and advocates will serve on subcommittees.