October 3, 2024

Spanish Regional Governments to Get Aid

Budget Minister Cristóbal Montoro said Tuesday that the government would create a credit line and advance about $10 billion to the regions, money they were not scheduled to get until later in the year.

The regions need the cash to pay suppliers, many of which are small businesses that have not been paid in months, even years, and are struggling to stay afloat.

But at the same time, Mr. Montoro said that Madrid would also seek new legislation to set penalties for regions that failed to comply with strict budget targets.

“I have no qualms about helping them, but neither do I have any qualms about being more demanding of them,” Mr. Montoro said after his first meeting with all the regional economic ministers.

Spain’s highly autonomous regions have spent recklessly in recent years — on generous public services and expensive capital projects, some of which look ridiculous in hindsight. Two regions, for instance, have built large airports, though virtually no one uses them.

And the regions’ failure to pay their creditors is now endangering many small enterprises, which are the backbone of the Spanish economy, already suffering from more than 22 percent unemployment, the highest in Europe.

Despite pressure from Madrid to rein in their budgets, many regions failed to meet their budget goals this year — a huge factor in Spain’s failure to meet its targets.

Just a few weeks ago, Prime Minister Mariano Rajoy announced a new $19.3 billion package of tax increases and budget cuts — intended to offset the impact of the unexpected jump in the 2011 public deficit to 8 percent from the 6 percent originally forecast.

Mr. Rajoy, who took office in December, quickly identified the regional government spending as a major problem that has to be dealt with. But he seemed to strike a more conciliatory tone this week as the government moved to help regions.

“We are all the state, and the Spanish government cannot remove itself from what is happening to the regional governments,” Mr. Rajoy said Tuesday, adding that he would not allow any regional government to go bankrupt as long as it met its budget goals.

Markets seemed to react positively to Mr. Rajoy’s new measures.

Spain was able to sell $8.5 billion in bonds on Thursday — more than expected, and at a better price. The sale suggested that markets had shrugged off the country’s downgrade last week by Standard Poor’s.

Yields that the country pays on 10-year bonds fell to 5.4 percent on Thursday, down from a high of 7 percent in November.

Spain’s system of autonomous regions was developed in the aftermath of the dictatorship of Francisco Franco. After years of repression, regions pressed successfully for as much freedom as possible.

They are generally in charge of administering schools, universities, health and social services, culture, development and, in some cases, policing. And the central government has until now had little ability to interfere.

But in recent years, the regions have been faced with some intractable problems. Education and health care have been particularly problematic, because those costs have been growing. At the same time, some main sources of financing — taxes on real estate sales and building permit fees — have dried up with the collapse of the housing boom.

For that reason, some regions may actually want the central government to take back some responsibilities, as was suggested in July by officials from the regions of Murcia, Valencia and Aragón.

Rachel Chaundler contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=5c92f501e306b52e57ddceccff66000c

Economix Blog: Casey B. Mulligan: The Biggest Cut in Unemployment Benefits

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Casey B. Mulligan is an economics professor at the University of Chicago.

While Congress has been debating whether to cut the duration of unemployment benefits, perhaps the largest unemployment benefit cut occurred when the stimulus law expired.

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Unemployment insurance offers funds, for a limited eligibility period, to people who lost their jobs and have not fyet been able to find and start a new job. In 2008, “emergency unemployment” legislation, plus automatic triggers in the unemployment insurance rules, extended the eligibility period to up to 99 weeks from 26 weeks.

Several times since then, and as recently as last week, new legislation has prevented the eligibility period from returning to 26 weeks.

The length of the eligibility period has received much attention; it affects how much the program spends and how much unemployed people receive. For example, if the weekly benefit were $275, and an unemployed person were unemployed for a year, then the average weekly benefit he would receive under the 26-week rule would be about $138 ($275 for half the year, and zero for the other half).

By extending the eligibility period to more than 52 weeks, this person would see his average weekly benefit increase to $275 from $138.

The green line in the chart below shows the average weekly benefit received by unemployed people over time, assuming that:

(a) they were receiving $275 a week until their benefits were exhausted
(b) about half of the aggregate time unemployed occurs in the first 26 weeks
(c) essentially all unemployment spells end in less than 99 weeks

These assumptions are a close approximation to the unemployment spells experienced by people 25 to 64 during 2010. For the reasons explained above, the line jumps to $275 from $138 in mid-2008, and then is constant thereafter.

However, the eligibility period is not the only part of the unemployment insurance rules that have changed since the recession began. The American Reinvestment and Recovery Act (the “stimulus law”) made a number of additional changes.

It increased the weekly benefit by $25 a week (and guaranteed that the $25 increase would not cause anyone to lose Medicaid coverage); federally funded 100 percent of extended benefits; exempted the first $2,400 of unemployment insurance received in 2009 from federal income tax; and paid 65 percent of an unemployed person’s health insurance premiums.

The act also paid states about $7 billion to allow more of the unemployed to qualify for benefits.

The federal financng of extended benefits meant that employers would not be liable for the extended benefits received by their former employees, which makes it less profitable for them to contest unemployment claims made by their former employees.

A $25 weekly benefit bonus was clearly worth $25 a week for as long as it lasted (until mid-2010). At a marginal federal income tax rate of 21 percent, the exemption from federal income tax on the first $2,400 of unemployment insurance received in 2009 is worth about another $10 a week.

Perhaps the most valuable added benefit was the health insurance subsidy. For unemployed people who, through the Cobra program, continued to participate in the health insurance plan they had with their former employer, the federal government would pay 65 percent of the premium. For such people, this subsidy is estimated to be worth about $170 weekly. This benefit ended in mid-2010.

The red line in the chart shows the combined unemployment benefits for an unemployed person participating in the Cobra program, excluding any benefits received from other safety-net programs such as food stamps or Medicaid.

The weekly benefit peaks in 2009 at $455. The increase in early 2009 when the stimulus law passed is even greater than the increase in mid-2008 from the lengthening of the eligibility period.

It is not yet known how many unemployed people received the Cobra health insurance subsidy, but many who did not had their health insurance covered by another federal program, Medicaid.

Moreover, a $455 weekly benefit is not small change; it is much more than someone would earn on a full-time job that paid minimum wage. Among the 106 million working-age heads of households and their spouses lucky enough to be working in 2009, about 25 million of them were earning less than $455 a week.

Even though Congress has not yet let emergency unemployment benefits expire, the largest unemployment benefit cut may have already occurred in 2010 when the stimulus law expired.

Article source: http://feeds.nytimes.com/click.phdo?i=72a45d6b308aa15dd9c036900e14dd57