Fran Spielman of the Chicago Sun-Times reports: "Chicago is applying for $106 million in federal-stimulus grants to hire 400 new police officers, even though there’s a costly string attached: When the three-year grants expire, the officers must remain on the city payroll for at least another year." 

Greg Anrig covered this problem in the American Prospect last week, calling it "stimulus withdrawal":

Because most ARRA (American Reinvestment and Recovery Act) money evaporates after 2011, states have been wary of launching initiatives that would fall back onto state ledgers after the federal money runs out. For example, stimulus money to extend the school year may not find many takers because it would be left to states and localities to pay for additional weeks beyond the next two years. Lillian Lowery, Delaware’s secretary of education, told Education Week, "What we cannot do is hire a lot of new people or [develop] many new programs at all, knowing in two years that falls off a cliff."

Chicago could really use the stimulus money, which is under a new version of the old Bill Clinton administration Justice Dept. COPS program.  About 300 officers retired last year and haven’t been replaced. Daley is threatening to layoff 1,504 city employees including 296 civilian police employees. So he’s probably smart to tap the stimulus money and hope for the best in 2012. Or hope there’s a second stimulus bill.-MB

The Washington Post’s Spencer Hsu had an interesting article over the weekend on a clash between the Pentagon and Dept. of Homeland Security over who should be patrolling the U.S.-Mexican border to stop Mexican drug violence from spilling over. Basically, DHS Sec. Janet Napolitano and border state governors want the Pentagon to send 1,500 national guard troops to patrol the border. But Defense Sec. Robert Gates argues that is what border agents are for and he fears deploying the national guard will result in a more permanent mission.

I think Gates has a point: isn’t containing the Mexican drug war exactly the kind of domestic security DHS was created in 2003 to do? On the other hand, the Pentagon, since 1989, has set aside money to have national guard troops help states with anti-drug programs. The problem is much different now than the crack cocaine epidemic of the late 80’s, but the point is that it’s not unprecedented for the national guard to wade into drug violence. Washington has spent 35 years talking about a "war on drugs." Now a literal drug war is happening adjacent to America and it probably requires extraordinary action by both the Pentagon and DHS.-MB

The reason why the government had to act to save General Motors and Chrysler — and why government interventions in extreme conditions make sense — is all wrapped up in the people who would suffer if government did nothing.  Jonathan Mahler tells the story in the New York Times Magazine of one Detroit family, the Powells, whose roots are deep in America’s postwar industrial revolution and who stand to lose it all if GM goes down.  In fact, they may lose almost everything even if GM is saved, since the company is getting ready to close six more assembly plants in Michigan alone.  But what Mahler does is capture the fact that the Powell family is rich — in deep family ties, in self-help and mutual aid, in a strong religious community, in the ability to make the best of a bad situation and not lose hope.  Mahler writes:

Talking to [Marvin] Powell, I was constantly torn between marveling at his faith, his stubborn belief that everything was going to work out, and the urge to tell him to look around, to read the paper on any given day, to see the train that’s heading straight for him and so many others and try to make a viable plan for his future before it’s too late.  But what would that plan be? . . . Maybe it wasn’t the job you dreamed of when you were 20, but it was what you did and what your father did . . . and it had never failed you before.  What would you do?  How would you prepare for the loss of all that? 

Determined free-marketeers should think about walking a mile (at 5:30 am as the morning shift begins) in Powell’s shoes.

These are people the government would have turned its back on if it had not bailed out GM.  And these people aren’t on their knees — they’re neither defeated nor begging (though many of them are praying a fair amount).  Government aid to GM is a sign to people like the Powells that the work they’ve done for decades to build an American icon — and the U.S. economy — counts for something.  And that kind of support for folks trying to make ends meet is a key strand in our social fabric — which will be stronger now even if GM ultimately fails.

Ned Hodgman

Income-tax and sales-tax collections for states have plummeted thanks to the recessions while demand for social services, like unemployment benefits, have increased creating big budget deficits. Unfortunately, most states now have to balance their budgets, Like right now, reports Leslie Eaton of the Wall Street Journal:

All but four states begin their fiscal years on Wednesday, and all except Vermont require that their budgets be balanced. States without budgets in hand include California, Pennsylvania, North Carolina, Delaware, Illinois, Ohio and Connecticut, where Gov. Jodi Rell, a Republican, has said she will veto the budget passed by the Democrat-controlled Legislature.

In California, cash is so short that the state controller says he will have to make payments using IOUs unless a budget is passed.

Indiana Gov. Mitch Daniels plans to shut down nonemergency government functions, but will continue to keep troopers on the highways and prisons staffed, said his spokeswoman, Jane Jankowski.

"This is all contingency planning," she said Monday. "The governor remains extremely hopeful we will have a budget before midnight tomorrow night."

Here in Illinois, the General Assembly’s House of Representatives voted 107-1 yesterday to borrow $2.2 billion to shore up the public employee pension fund and some social services. Unfortunately, Illinois has either a $9 billion (according to Gov. Pat Quinn) or $7 billion budget deficit (according to many state legislators).

The Illinois General Assembly has been a pretty laconic body this year, seeing no urgency to pass government reform measures in lieu of the Rod Blagojevich flameout. But the lack of urgency now is even more disconcerting. The legislature is discussing the issue as if it were part of a political campaign against Quinn ("Quinn wants to raise your taxes" "Quinn is inconsistent in what he says") instead of an emergency situation. They have 24 hours left.-MB

Supreme Court cases are off my blogging beat, but a 5-4 ruling yesterday establishes how states will enforce federal financial regulations, which so is on my beat. John Schwartz of the New York Times reports that the court decided that states have the right to enforce federal regulatory laws, which in this case involved the right to enforce fair lending and consumer protection laws. In 2005, Eliot Spitzer, when he still New York state attorney general, suspected that national banks like Wells Fargo were violating fair lending laws by giving bad deals to Latino and black borrowers. But when Spitzer demanded records, the banks replied that only the federal government had a right to see those records.

But just like in March when they said states can enforce federal food and drug safety laws, the normally pro-business court sided here with the states. What this means is that whatever financial regulatory overhauls Obama and Congress agree to, the states have a right to enforce them if, say, the Securities and Exchange Commission doesn’t. This is already happening in the investigation of the subrprime mortgage crisis: While the Justice Dept. is AWOL in their white collar crime investigations, state attorneys general have picked up the slack. The Court decision means banks will have to comply when these AGs demand records or issue subpoenas.-MB

The Wall Street Journal’s David Enrich, Liz Rappaport, and Jenny Strasburg chronicle the rise, fall and unlikely re-birth of the $1 trillion Public Private Investment Program, which, back in March, seemed the key program in the Obama administration’s plan to re-start the economy:

Early this month, the Federal Deposit Insurance Corp. essentially shelved one arm of PPIP — the government-financed buying of bad bank loans. Mr. Geithner recently said the other part — to facilitate the buying from banks of troubled securities, many backed by real-estate loans — could be scaled back because investors are "reluctant to participate." This week, the government is expected to name investment firms to manage this securities-buying portion.

The Bush and Obama administrations announced plans, backed by incomprehensible sums of money, to have banks unload their subprime mortgage securities and other troubled assets. The Journal reminds that this is what the Bush/Henry Paulson $700 billion Troubled Asset Relief Program was supposed to do (the name kind of gives it away). It was misleading by both Bush/Paulson and Barack Obama/Tim Geithner to announce both programs with such fanfare and then quietly shelve them. And it makes the new Obama administration argument — that unloading troubled assets off bank balance sheets isn’t that important — sound disingenuous.-MB

Rosalind Rossi of the Chicago Sun-Times reports:

The typical Chicago public school loses more than half of all its teachers within five years — and about two-thirds of its new ones, a study released today by the University of Chicago indicates.

Teacher churning is especially severe in high-poverty, heavily African-American schools — about a hundred total — where half of all teachers disappear after only three years, the study found.

…Smaller schools suffered higher teacher turnover than bigger ones, perhaps because "small schools put enormous demands on teachers and can potentially ‘burn out’ even the most enthusiastic new teacher,” the study warned.

This study does not say much for former Chicago Public Schools head and current Education Secretary, Arne Duncan. Duncan made improving teacher quality his priority and while he might have identified the problem, he evidently did little in his seven-year reign to find a solution. Further, the smaller charter schools that CPS has turned to in the past five years are particularly burning out teachers. It’s important to "hold teachers accountable," as Duncan and other education reformers put it, but it seems more important for principals, parents and city administrators to be more supportive.  Hopefully, the Chicago Teachers Center, a program started by Duncan and continued by new CPS CEO Ron Huberman, can start to provide some of that support.-MB

David Johnston of the New York Times says that the Justice Department is arguing for more somewhat more constitutional-esque military tribunals for terrorist detainees than the Bush administration allowed. Detainees would have the right to contest a military tribunal decision in federal court if coerced statements (i.e. confessions obtained through torture) were used against them in military court.

In other terrorist detainee news, it was reported this weekend that Barack Obama might issue an executive order that would allow him to hold terrorist suspects indefinitely. In other words, the terrorists would be detained just as they are now at Guantanamo Bay, only they’d be detained somewhere else.

One things that’s disconcerting here is that Obama and the Justice Department are making these huge legal decisions absent leadership from Justice’s Office of Legal Counsel, the part of government that gives legal advice to the president. Obama nominated Dawn Johnsen to head OLC in 2008. Halfway into 2009, she’s still waiting Senate confirmation, as there’s apparently a question if she has the filibuster-proof 60 votes to get confirmed. Not to be too hard on the world’s greatest deliberative body, but it would be nice if Johnsen could get an up-down vote by, say, next January, at which time Obama promises to shut down Guantanamo’s detention camp.-MB

Jeff Gerth of ProPublica and Brady Dennis of the Washington Post report that GE Capital, the banking arm of General Electric, has issued billions in loans that the Federal Deposit Insurance Coporation guarantees in its Temporary Liquidity Guarantee Program. The program started last October and it was strictly intended to guarantee lending for troubled banks but the rules were tweaked to include commerce/banking hybrid GE. Gerth’s and Dennis’s report is particularly relevant since Barack Obama’s proposed financial regulations involve forcing companies to make a choice of whether they want to be in banking or commerce.

Interestingly, though, while it may have been unfair to guarantee GE Capital’s loans and the FDIC was reluctant to do so, the loan guarantees are apparently working:

Despite those misgivings, there have been no defaults in the loan guarantee program. It has helped buoy confidence in the credit markets and enabled vital financial firms to raise capital even during the darkest days of the financial crisis. In addition, the program has raised more than $8 billion in fees.

The real injustice then might be that GE, the largest company in the world according to Forbes, used its power and influence to join the program while its smallest competitors could not:

One of GE’s competitors in business lending markets, CIT Group, a smaller company, has had a harder time raising cash. It has been unable to persuade the FDIC to allow it into the debt-guarantee program, at least in part because of its lower credit ratings. A recent Standard & Poor’s analysis cited CIT’s "inability to access TLGP" as a factor in the company’s declining financial condition.

Obama and Congress have to set new regulations that actually encourage competitive markets instead of enabling the GE’s of the world to become masters at manipulating the regulations.-MB

I triumphantly return to the Beltway Outsider blog today after a brief hiatus in Wisconsin. This blog started as sort of a watchdog of federal government and has expanded to look at state and local governments, particularly the state of Illinois and city of Chicago. So, since my blogging and longer pieces are often critical, let me just say that the Wisconsin Department of Motor Vehicles is great! Friendly people, quick waiting times and no examples I saw of irrational "bureaucratic" rules tripping up their service.

Anyway, as I return to blogging about budget crises in Illinois and Chicago and the Obama administration’s attempts to deal with inherited disasters like the economy and the "war on terror," remember that a lot of government works fine. Especially the Fond du Lac, Wisconsin DMV.-MB