New York State Will Likely Default And Rating Agencies Will Be Liable If They Fail To Properly Rate NYS Bonds

Copy of letter sent August 16, 2011

To: Moody's Investors Service, Inc.,101 Federal Street, Suite 1900, Boston, MA 02110
Standard and Poors, 55 Water Street New York, New York 10041
Fitch's, One State Street Plaza,  New York, NY 10004
Dagong Global Credit Rating Co.,Ltd
29/F, Unit A, Eagle Run Plaza, No.26 Xiaoyun Road,Chaoyang District,Beijing, P.R.China 100125

Re: US Rating agencies will face a large liability for improper ratings for NY State Bonds. Default/bankruptcy coming shortly. Catastrophe in waiting: Average NYS non-financial sector income of $50,400 a yr. results in less net income than average NYS dole benefit of $42,000 a yr.


Dear Rating Agencies:
       How long do the rating agencies think this can continue in NY State?  While NY State pays the average public assistance person $42,000 a year in benefits according to Lou Dobbs's radio show on 8/15/2011, the average non-financial sector NY State income was $50,400.*  And NY State relies more heavily on personal income tax for its revenue than other States.*  When will the federal government cut off NY State's Medicaid program which is run as a fraud, where NY State mischarges the federal government $22 billion dollars to fund its non-medicaid State budget?  Andrew Cuomo's business friendly NY has fizzled.  Meanwhile, Andrew Cuomo failed to begin to change the NY Constitution to end unaffordable pension costs.

      "A word to the wise is sufficient."  The US based rating agencies will have a large liability, if NY State bonds are improperly rated.  The future possibility of repaying NY State bonds not backed by a dedicated revenue source is non-existent.  NY State bonds finance State agencies as well as State government.  Some bondholders, such as Thruway bonds or Dormitory bonds, receive first dibs on revenues, if the State doesn't pay on time.  Other bonds are backed by the full faith and credit of NY State without a dedicated revenue source.  But if the State doesn't have enough cash in revenue, how can it pay?

These are the details:
First, this is the text from NY State Constitution: §7. After July first, nineteen hundred forty, membership in any pension or retirement system of the state or of a civil division thereof shall be a contractual relationship, the benefits of which shall not be diminished or impaired. (Adopted by Constitutional Convention of 1938 and approved by vote of the people November 8, 1938.)

  Then, in regard retiree costs:
  1. Although, Chris Christie reformed pension and benefit costs in New Jersey, Andrew Cuomo failed to ask this session of the Legislature for a Constitutional Amendment to change the above clause which prohibits NYS from changing any retirement contractually promised benefits, such as Health Insurance and Pensions.  Such an amendment must first be passed by this and then the next legislative session and then finally approved by the voters. 
http://cuomotarp.blogspot.com/2011/08/rating-agencies-informed-as-new-york.html

    2. NY State has not funded its retiree health benefits which were part of State workers' contracts with NYS and are constitutionally protected.  NewYork Adds $56.3 Billion To Its Unfunded Liabilities

    3. NY State's pensions are a Madoff style Ponzi scheme where NYS promises a 7.5% "safe return" when that is impossible.  All the undeposited funds needed to properly fund the pension funds and the losses of up to $7.3 trillion dollars are liabilities of NYS.  Any higher taxes to fund this shortfall would create a stampede of taxpayers getting out of NY State..

Then in regard taxpayers

    4. Taxpayers are fleeing NYS at the largest rate in the USA.   Who'll repay the bonds?

    5. NY State has the highest local and State debt per person and the second highest taxes paid per person of any State but New Jersey.    New York Debt per person including local debt is at $24,195. For a family of four about $97,000.   Will NYS raise taxes even higher and borrow more?

    6. Andrew Cuomo will not attract business or its potential taxes to NYS because NYS has the next to lowest business friendly rating of all the States.   When NY businesses repay the $ 3.6 billion dollar Unemployment Insurance loan to the Federal government this November 2011, NYS will become a business pariah.

    7. What happens when the millions of NYS taxpaying residents earning the average non-financial $50,400 or less discover their net income is less than the average dole recipient's $42,000 a year?   Do they leave the State or go on the dole?

  Then, in regard State revenues:   
   8. The NY Comptroller predicts rising numbers of non-taxpayers in the NY State Medicaid system*.


   9. NY State funded 14% of its budget this year with one time funds that will not be available in future years.

   10. Andrew Cuomo's Budget director says, he has no ability to finance spending commitments already.  This was recorded at a 7/20/2011 hearing of Cuomo's Commission on Judicial Compensation: "We don't even have the ability to finance the spending commitment that are already in place, said Robert L. Megna."


    The Bottom Line:

• a rapidly rising NYS expenditure for retiree and others' benefits
• a reduced number of businesses in NYS paying taxes and paying workers
• more NYS Medicaid non-taxpayers
• taxpayers fleeing the State
• NY State will run out of cash from its diminishing revenue sources
• NY State either defaults or goes bankrupt if Congress enables State Bankruptcy by a new law
• a tax revolt when those millions earning the average non-financial income of $50,400 or less realize that the average NYS dole recipient receives $42,000 yr. in benefits

 And the US rating agencies would be sued by all the suckers still holding devalued and defaulted NYS bonds.   And Dagong may have protected foreign investors and exposed the hopeless finances in New York State.

Sincerely yours,

CuomoTARP.blogspot.com

*See Financial Condition Report for Fiscal Year 3/31/2010

P.S. Please access website for working links to all data.  

NY Will Follow Greece; NY Budget Director Reveals NY Can't Finance Budget; Congress Asked for State Bankruptcy Law

  A follow-up letter to Bond Rating Agencies and Congress was faxed/or mailed.
 
Dated 7/26/2011
 To: Michele Bachmann, Ron Paul, Allen West, Thaddeus McCotter, US Representatives;  Rand Paul, David Vitter, Jim DeMint, Senators; Moody's, Fitch and Standard+Poors;
and Harry Reid, Majority Leader; Mitch McConnell, Minority Leader; John A. Boehner, Speaker; Eric Cantor, Majority Leader; Darrell Issa,Chair House Oversight and Government Reform; Lamar Smith, Chair House Judiciary; Patrick J. Leahy, Chair Sen. Judiciary; Charles E. Grassley,Sen. Judiciary; Paul Ryan, Chair House Budget; Harold Rogers,Chair House Appropriations; Kent Conrad, Chair Sen. Budget; Jeff Sessions, Sen. Budget; Daniel K. Inouye,Chair Sen. Appropriations; Thad Cochran,Sen. Appropriations; Tom Harkin, Chair Sen. Health; Michael B. Enzi,Sen. Health; Chris Van Hollen, House Budget; Spencer Bachus,House Financial Services; Barney Frank, House Financial Services; Max Baucus,Sen. Finance;Chuck Grassley, Sen. Finance

Re: Greece in the USA; NY Budget Director can't finance NY budget; bankruptcy law needed

Dear Congressman and Rating Agencies:

       Moody's reports default on Greek debt almost certain.   New York State has the highest debt per person in the USA ($24,195) and the second highest taxes per person ($6,884).  This is a Heads-up call to Rating Agencies and Congress that New York State has run out of money and a Greek-like bail-out request is coming.  Andrew Cuomo's Budget director says, he has no ability to finance spending commitments already.  This was recorded at a 7/20/2011 hearing of Cuomo's Commission on Judicial Compensation: "We don't even have the ability to finance the spending commitment that are already in place, said Robert L. Megna, who was speaking on behalf of Governor Andrew Cuomo, who appointed three of the commission's seven members." You can hear his testimony from 00:32:34 to 00:56:17 at
http://pointers.audiovideoweb.com/stcasx/va91win1520/Judiciary07202011edit.wmv/play.asx


      Andrew Cuomo claims to balance the State Budget and then approves a Commission to raise judges' pay by 61%, when he can't even pay for the items already in his budget.  Sorry, Andrew, if you can't finance your spending commitments, you're broke and will run out of money like Greece.    New York State needs the option to go bankrupt and I've copied a condensed version of my earlier faxed 1/26/2011 letter to Congress, with the simple changes necessary to create a Chapter 10 Bankruptcy for States.  link to 1/26 fax post


[condensed] FAX sent dated: 1/26/2011
 Someone needs to get the bankruptcy ball rolling; so here goes.  A Primer for a State's Bankruptcy:

Why?   New York will go bankrupt because Cuomo is not acting to easily correct $28 Billion dollars Medicaid excesses in NY compared with others States (California).    His proposals to dismiss 12,000 State employees might account for $1.2 billion dollars saved.   That's $1.2 billion out of the $10 billion he claims is the budget deficit.  So, Cuomo runs out of cash.  But, he's not alone, several governors will join him.  They need a cover, who'll stiff the State bondholders and redo employee contractual benefits and pay.  It's not me (your beloved Elected Governor), it's the bankruptcy judge.

Is it Constitutional?  Yes, because the law proposed below was only modified by replacing the words referring to a State's municipality, with the word(s) referring only to a State.   "The first municipal bankruptcy legislation was enacted in 1934.   ..., the Supreme Court held the 1934 Act unconstitutional as an improper interference with the sovereignty of the states. Ashton v.Cameron County Water Improvement District No. 1,  [Then] Congress enacted a revised Municipal Bankruptcy Act in 1937, ... which was upheld by the Supreme Court. United States v. Bekins."

                [note:Chapter 9 is the existing law for municipal bankruptcy]
How?  The proposed Chapter 10 for States has identically to the existing constitutional Chapter 9, no provision for the sale of assets, nor for such to be given to creditors. Just as in Chapter 9, the bankruptcy court cannot actively mange the State's affairs, and can only approve a reorganization plan submitted by the State. And as in Chapter 9,; the State can use the bankruptcy court to enforce court orders and preclude any connected litigation elsewhere and change contractual agreements.

Details In the proposed Chapter 10:
1. The bankruptcy judge is assigned by the Chief Federal Judge of the State;
2. A list of all creditors can be filed after filing bankruptcy petition;
3. Automatic stays of all collections against the State can be stayed; the court can fix time and manner of the filing of all claims against the State;
4. Only the State and not creditors, nor someone appointed by the bankruptcy court can propose a settlement;
5. The State retains its powers to use its property, raise taxes, and make expenditures and change non-debt contractual relationships;
6. The State can reject collective bargaining agreements and retiree benefit plans;
7. Interested parties may be heard, but no one but the State can file a PLAN for resolution of the debts and obligations.

Proposed Chapter 10:
I've copied sections of the Federal Bankruptcy law for Chapter 9 and would remove text in blue and insert the red text.  Other parts of this Chapter 9 would remain unchanged and be renumbered from  §§ 901-946 to §§1001 to 1046

TITLE 11 CHAPTER 9 10
  CHAPTER 9  10—ADJUSTMENT OF DEBTS OF A MUNICIPALITY STATE
SUBCHAPTER I—GENERAL PROVISIONS (§§901-904 1001-1004)
SUBCHAPTER II—ADMINISTRATION (§§921—930  1021-1030)
SUBCHAPTER III—THE PLAN (§§941—946  1041-1046)

903.1003. Reservation of State power to control municipalities Sovereign power

This chapter does not limit or impair the power of a State to control, by legislation or otherwise, a municipality of or in such State in the exercise of the political or governmental powers of such municipality, including expenditures for such exercise, but— such State, a State law prescribing a method of composition of indebtedness of such municipality of such State may not bind any creditor that does not consent to such composition; and (2)a judgment entered under such a law may not bind a creditor that does not consent to such composition.

904. 1004. Limitation on jurisdiction and powers of court
Notwithstanding any power of the court, unless the debtor consents or the plan so provides, the court may not, by any stay, order, or decree, in the case or otherwise, interfere with—any of the political or governmental powers of the debtor State; the debtor’s use or enjoyment of any income-producing property; the sovereign immunity of such debtor State.

921. 1021. Petition and proceedings relating to petition 109(d) and 301 of this title, a case under this chapter concerning an unincorporated tax or special assessment district that does not have such district’s own officials is commenced by the filing under section of this title of a petition under this chapter by such district’s governing authority or the board or body having authority to levy taxes or assessments to meet the obligations of such district.  State.
(b)The chief judge of the court of appeals for the circuit embracing the district State in which the case is commenced shall designate the bankruptcy judge to conduct the case. After any objection to the petition, the court, after notice and a hearing, may dismiss the petition if the debtor did not file the petition in good faith or if the petition does not meet the requirements of this title.
If the petition is not dismissed under subsection (c) of this section, the court shall order relief under this chapter notwithstanding section (b)The court may not, on account of an appeal from an order for relief, delay any proceeding under this chapter in the case in which the appeal is being taken; nor shall any court order a stay of such proceeding pending such appeal. The reversal on appeal of a finding of jurisdiction does not affect the validity of any debt incurred that is authorized by the court under section (c)or (d)

927. 1027. Limitation on recourse
The holder of a claim payable solely from special revenues of the debtor State under applicable non bankruptcy law shall not be treated as having recourse against the debtor on account of such claim pursuant to section (b) of this title.


[January 2011]By Fax to Chairman and ranking Minority Member of Senate and House Judiciary Committees and the Senate Subcommittee on Administrative Oversight and the Courts and the House Subcommittee on Courts, Commercial and Administrative Law
Patrick Leahy (D-VT); Jeff Sessions (R-AL)
Lamar Smith (R-TX); John Conyers, Jr. (D-MI)
Sheldon Whitehouse (D-RI); Howard Coble (R-NC)

[end of 1/26/2011 condensed fax]

         Here are Constitutional Considerations from blog post dated  1/27/2011  In regard the proposed Chapter 10 Bankruptcy for States:
       Why must Bankruptcy for States be different from ordinary bankruptcy? While, Congress has the power to make laws for bankruptcy under Article 1-Section 8 of the US Constitution, the States cannot make their own bankruptcy laws because of Article 1-Section 8 of US Constitution.  Without bankruptcy, States could not void or alter contracts with State employees or bondholders or other contract holders under Article 1-Section 10 of the US Constitution.   States also must honor the judicial acts of other States involving contracts with NY State under Article 4-Section 1 of US Constitution.   And States retain all sovereign powers except those removed by the Constitution based upon Amendment 10.

        The text of relevant sections of US Constitution:

                         Article 1
Section 8. The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
To borrow Money on the credit of the United States;
To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;
To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;
Section 10. No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

                         Article IV
Section 1. Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State. And the Congress may by general Laws prescribe the Manner in which such Acts, Records, and Proceedings shall be proved, and the Effect thereof.

                  Amendment X
The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

    In conclusion, it would be easy to create a Chapter 10 bankruptcy for States.  Bankruptcy would allow New York State to alter its present contracts, change its employment contracts and make changes in NY's bondholder's rights, while still allowing NY State to keep its sovereignty as per US Constitution.  Also, the federal government would not need to bail-out New York State.  The bond rating agencies can update their ratings on New York debt.

Sincerely yours,

CuomoTARP.blogspot.com. [please access web site post dated 7/26/2011 for working links]

New York Heads for Default/Bankruptcy Following Greece's and Italy's Path

     Answer the simple questions and see if NY Debt Default or bankruptcy is inevitable.
First facts: QE 2, the buying of federal debt ends this month and the US Treasury Bond market will lose its largest purchaser and the Chinese are not going to step in.    Link 1
 Question 1. When bond buyers disappear, must bond rates be raised?
 Question 2.  When US bonds rates go up, what happens to NY State Bond rates?
 Question 3.  Will Congress save $200 billion a year with no effect on beneficiaries by going to Medicaid block grants in September?     link 2

Fact: Neither Greece nor Italy can print money, because they have the euro and NY is not allowed to print money.  Question 4. What's the difference between Greece or Italy and NY State when both spend more than they can pay back?   link 3  link 4

 Fact: Angela Merkel, German Chancellor, said Germans don't want to pay for Greeks to retire at 51.  

Question 6.Will other States want to fund NY's Medicaid excesses used for non-Medicaid purposes.

Fact: NY has the highest of any US State total of $27,097 State and local debt per person or $108,388 for a family of four.

Question 7. Will higher Debt drive out more tax paying NY residents and retirees as recommended by Bob Brinker? 
Question 8. What interest rate will be charged NY State with the highest debt per person?
Question 9. Where will Cuomo get the $47 billion dollars to cover NY Medicaid excesses?   link 5

The Laws of Gravity or The Laws of Economics in the end are always obeyed.  You reap what you sow and the Piper must in the end be paid.   
Who'll lend this money, which we can't pay back, Andrew? 

Cuomo's Pension Reform Is Too Little, Too Late And Fails To Solve New York's Huge Pension Debt Problem

Cuomo's acting is full of sound and fury and accomplishes nothing to solve already existing Pension Debts.   Can you do that song and dance routine again, Andy?  Or is the stale Albany dog and pony act next?

      Andrew Cuomo prances in the limelight futility attempting to close the Pension Barn Door after the pension dollars were already legally given away.    Cuomo failed to propose and begin in the NY Legislature the passage of a repeal of NY Constitutional Amendment §7.    Fixing the future is good, but ignoring the existing pension debt burden is a disaster.

     Cuomo's latest pension proposals to "increase the retirement age to 65 ...end early retirement, force employees to pay twice as much toward their pension, and end the “padding” of pensions through overtime pay, sick time and other means" will do nothing for any of the budget catastrophes described in this blog already.  All the debts, unfunded liabilities, and other improperly accounted budget items continue to insure default or bankruptcy.
Specifically,
1. NY forgot to fund $53 Billion in retiree health benefits. link 1
2. Block grants for Medicaid will cost NY $32 Billion dollars a year. link 2
3. $3 Billion in NY State Medicaid fraud must be refunded to the Federal government link 3
4. New York has the highest debt per person of US States at a total debt per person of $31,536, which must be added to USA debt per person of $44,805.  Now, multiple this total by four for a family of two adults and two children.   link 4
5. New York's unfunded pension liability of $143 billion dollars is combined with a Madoff-style assumption that 7.5% will be safely earned on pension investments when the latest return is 1.1%. link 5
6. Cuomo's budget had a fantasy forecast for increased tax revenues. link 6
7. Cuomo forgot he has to pay the federal government back $3.6 billion which was borrowed last year to fund unemployment benefits and is due by November of this year.  link 7
8. Cuomo's plan to attract business fizzles because of more taxes due next year for business. link 8
9. The young workers that Cuomo hopes to keep are planning to flee NY's taxes and dying business opportunities. link 9

      Bankruptcy is the only way out for New York, because of its Constitutional protection for pensions in NY Constitution § 7. ...membership in any pension or retirement system of the state or of a civil division thereof shall be a contractual relationship, the benefits of which shall not be diminished or impaired.

Proposed federal bankruptcy laws are described in this blog at link 9, link 10, link 11

Your act is over, Andrew, and the handwriting was on the wall in November.  link 12

Federal Bankruptcy Chapter 10 For State Bankruptcy Sent To House And Senate Leaders

The post is a repeat of "The Bankruptcy Cat Is Out Of The Bag And Some States' Bonds Will Tank" with proposed Federal Bankruptcy Law Chapter 10 which is now being faxed to the House and Senate Leadership and certain Committees' leaders.

Condensed excerpt:
To Members of Congress:
... Republicans aren't going to bailout States, but Cantor in the House says State bankruptcy will face an uphill battle and "analysts -- and states themselves -- are concerned that opening up a bankruptcy option would spook the buyers of state debt, driving up interest rates and making borrowing more expensive."

Except the cat is out of the bag, because of above linked article and Bob Brinker, Long-time Radio Financial Adviser has recommended, "The six that really jump out for me would be Arizona, California, Illinois, Louisiana, New York and New Jersey.... I would not purchase their municipal securities.....that's just my opinion."
Democrats in House and Senate must help States in trouble to force bondholders to share the burdens of fiscal excesses, since they too profited via said bonds in the excess debt. ...

Proposed Bankruptcy Chapter 10 and full text text at this link

Full text of The Bankruptcy Cat Is Out Of The Bag And Some States' Bonds Will Tank sent to:
Harry Reid, 202-224-7327;Mitch McConnell 202-224-2499
Jon Kyle 202-224-2207; John Boehner 202-225-0704
Eric Cantor 202-225-0011;Kevin McCarthy 202-225-2908
Nancy Pelosi 202-225-4188; Steny Hoyer 202-225-4300
Paul Ryan 202-225-3393 House Budget Committee
Chris Van Hollen 202-225-0375 House Budget Committee
Spencer Bachus 202-225-2082 House Financial Services
Barney Frank 202-225-0182 House Financial Services
Max Baucus 202-224-9412 Senate Finance Committee
Chuck Grassley 202-224-6020 Senate Finance Committee
Tim Johnson 202-228-5765 Senate Banking
Richard Shelby 202-224-3416 Senate Banking

The US Constitution And Chapter 10 Bankruptcy For States

We the People  of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America. ~ Preamble to US Constitution

  In regard the proposed Chapter 10 Bankruptcy for States:
       Why must Bankruptcy for States be different from ordinary bankruptcy? While, Congress has the power to make laws for bankruptcy under Article 1-Section 8 of the US Constitution, the States cannot make their own bankruptcy laws because of Article 1-Section 8 of US Constitution.  Without bankruptcy, States could not void or alter contracts with State employees or bondholders or other contract holders under Article 1-Section 10 of the US Constitution.   States also must honor the judicial acts of other States involving contracts with NY State under Article 4-Section 1 of US Constitution.   And States retain all sovereign powers except those removed by the Constitution based upon Amendment 10.

The text of relevant sections of US Constitution is copied below:


Article 1
Section 8. The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
To borrow Money on the credit of the United States;
To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;
To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

Section 10. No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.


Article IV
Section 1. Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State. And the Congress may by general Laws prescribe the Manner in which such Acts, Records, and Proceedings shall be proved, and the Effect thereof.


Amendment X

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

    Proposed Chapter 10 Bankruptcy for States