From the Dispatch

Department of Justice to States: Don’t Sue Polluters

Fabiola Carrion — Thu, 02 Sep 2010 13:18:27 -0400

In a blow to states’ leadership over clean energy, the U.S. Department of Justice has filed a brief before the U.S. Supreme Court arguing that states cannot sue power plant operators that generate pollution. The Justice Department alleges that: (1) the Environmental Protection Agency has already started to regulate greenhouse emissions; and (2) states lack standing to assert a federal nuisance claim.

The brief was filed in connection with litigation where Connecticut and seven other states (New York, California, Iowa, New Jersey, Rhode Island, Vermont, and Wisconsin) as well as New York City sued a group of utilities that emit significant amounts of carbon dioxide. The suit contends that utilities are creating a “public nuisance” through their greenhouse-gas emissions, contributing to global warming, and consequently injuring the states in their capacities as sovereigns or property owners.

States have been able to sue harmful emitters under the nuisance theory since a 1907 Supreme Court decision that required Tennessee copper companies to reduce emissions that were damaging to Georgia farmers’ crops. Should the DOJ’s second legal reasoning of standing be adopted by the courts, the 1907 decision would be trumped and federal nuisance law will not be able to act as backstop against carbon dioxide emissions.

Environmental organizations have criticized the Department’s stance and acknowledge states’ actions to combat climate change in the absence of legislation from Washington DC. Further, they note that although the EPA has adopted regulations to limit greenhouse-gas emissions, the agency has not defined how it expects power plants, factories and other stationary sources to control their greenhouse-gas emissions. Moreover, they point out, EPA’s regulation over greenhouse gas is still not in effect and is only applicable for the largest and newest sources of pollution.

As we have discussed in previous Dispatches, states are often the laboratories where good policies are first created; and clean energy reform is undoubtedly one of them. If the federal government were to prevent states from exercising their authority over environmental policy, this decision could have detrimental effects on further policy innovation at the state level.

Private Tax Filing Firm Lobbying to Scrap Successful State Tax Preparation Services

Altaf Rahamatulla — Thu, 26 Aug 2010 12:17:37 -0400

Intuit, a private firm that manufactures TurboTax, has pushed California lawmakers to eliminate the popular, successful, and cost-effective public tax filing services, ReadyReturn and CalFile. These two programs offer millions of low- and middle-income Californians a free and reliable method to calculate and file taxes. They are also wildly popular - ReadyReturns's user satisfaction rate reaches above 98 percent. The state's Franchise Tax Board estimates that in total, ReadyReturn and CalFile save taxpayers between $4 million and $10 million in filing fees and reduces the state's processing and administrative costs by $500,000 a year. Considering the depth of the state's fiscal and economic woes, these savings are sorely needed.

Intuit has spent over $1.25 million in the past five years on lobbying efforts to kill the programs and provided right-wing politicians with over $2 million in campaign support. Their efforts have had a visible impact: conservative state lawmakers have withheld support for domestic violence shelter and police department funding in an attempt to force the elimination of the programs.

In their crusade against government and public structures, the anti-tax movement is joining the opposition to these types of tax preparation programs because a dependable, popular, and cost-effective government service does not suit their hackneyed and hollow messaging.

As Professor Dennis J. Ventry Jr. of the UC Davis School of Law notes, "[a]bolishing ReadyReturn and CalFile would hurt Californians. Intuit's alternative would cover fewer taxpayers and provide fewer services; it would cost individuals millions of dollars in preparation fees (much of which Intuit wants to pocket); and it would kill two programs that actually save the state money. It doesn't add up for anyone. Except Intuit." Accordingly, this effort to eliminate a successful government program that saves money and assists millions of taxpayers follows the pattern of right-wing behavior at both the state and federal level -- placing the interests of large corporations and the very wealthy over middle class families and effective economic and fiscal policy.

Resources

California Budget Bites - Summer Doldrums Reveal Yet Another Threat to Ready Return
Progressive States Network - Right-wing Budget Hypocrisy: Taking Recovery Funds, Denouncing Deficits and Promoting Costly Tax Cuts
The Los Angeles Times - Intuit just won't quit

CAFTA Trade Lawsuit Highlights Threat To State Regulations From Bad Trade Agreements

Tim Judson — Thu, 26 Aug 2010 11:11:51 -0400

We've detailed in the past the way new international trade deals empower corporations to undermine local regulations. A recent case highlights just how byzantine and dangerous the process is getting:

A Canadian mining company is using a recently established Nevada subsidiary to use the federal Central America Free Trade Agreement (CAFTA) to try and overturn mining regulations in El Salvador.

Earlier this month, a tribunal under CAFTA ruled against the US government’s objections to the mining company's lawsuit and allowed the case to proceed.

Corporate "Investor Rights" Expanding: The case will be a high-profile test of so-called “investor state enforcement” (ISE) provisions which have become a common feature in trade agreements since NAFTA. These same investor rules are a central feature of three pending trade agreements (with Korea, Colombia, and Panama), which the Obama administration plans to finalize in coming months.

First invented as part of NAFTA, ISE rules grant companies which operate in one of the states that are party to the trade pact the right to sue another party country's government if that country’s federal or state laws and regulations impinge upon the company’s investments there. Such cases are heard by private arbitration tribunals outside of the defendant country’s legal system. These extraordinary private-investor rules grant foreign companies greater rights than domestic companies, which may not have legal basis for challenging commonly accepted public interest laws. Between 1994 and 2009, sixty-four cases were brought against countries under NAFTA, costing governments untold millions of dollars in legal expenses and amounting to billions of dollars in potential judgments. In total, governments have been found liable for over $200 million in judgments under NAFTA.

By far, the more significant implications of ISE rules are the threats they pose to the environment, workers, public health, and other public interest constituencies. In addition to the expansive opportunities they afford to multinational corporations to undermine public interest laws, they can drain government resources and create a chilled policy environment in which elected officials and public agencies feel constrained by the threat of investor-state actions. The El Salvador case is exemplary of the danger states face from the investor-state rules included in the proposed Korea-U.S. Free Trade Agreement (Korea FTA), in particular.

The El Salvador Case and the Threat to Local Regulation: The Canadian mining company, Pacific Rim Mining Corporation, is challenging a progressive mine-licensing law passed in 1996 with a two-step licensing process. First, a company must obtain a permit for exploratory mining, which Pacific Rim did in 2002. Before it can initiate commercial mining, the company must next obtain a full-scale exploitation permit, which requires approval of both an Environmental Impact Assessment (EIA) and a financial and technical feasibility study in order to protect El Salvador’s scarce potable water resources. Pacific Rim has not submitted such an application.

Pacific Rim's plans included using two tons of cyanide per day to process the ore, at a site located on El Salvador's largest river and source of drinking water. Due to the dangers posed by such mining practices, a national movement formed against precious metal extraction, and in March 2008, the conservative government led by President Elias Antonio Saca announced that no more permits would be issued until a new, thorough environmental study was completed and a mining reform law was passed.

Faced with this changing political environment, Pacific Rim decided to exploit CAFTA’s investor-state rules. At the time, however, the company had no U.S.-based operations and therefore no standing under CAFTA to sue El Salvador. So in December 2007, it reincorporated a Cayman Islands subsidiary in the state of Nevada, and in April 2008, following President Saca’s announcement, sent a letter to the Salvadoran government threatening to file suit. In December, Pacific Rim filed suit, claiming hundreds of millions of dollars in damages.

The El Salvador government filed for dismissal, but on August 2, 2010, the arbitration panel rejected the government’s position and ruled that the case will move forward. The government has since filed a second set of objections challenging Pacific Rim’s “nationality change” as an abuse of the treaty and claiming that Pacific Rim’s Nevada subsidiary is not the proper interested party, but rather the Canadian parent corporation, which has no significant investment interests in the U.S.

The case could determine how broadly ISE provisions will be extended in practice, and it illustrates the dangers to states’ sovereignty posed by future trade deals. If a multinational corporation can relocate a subsidiary to the US to undermine another FTA country’s laws, then the same could be done to undermine progressive US state laws, such as California’s new vehicle efficiency standards, that have been upheld as constitutional. The Obama administration plans to move first on the Korea FTA, which poses the greatest risk of investor-state suits of any agreement since NAFTA. Korea-based corporations have hundreds of operations located in the US, and as it is written, the Korea FTA would even enable companies to skirt new US financial reforms.

Resources

Public Citizen’s Global Trade Watch -

Progressive States Network - Trade and the States: Promoting Collaboration on Negotiating and Implementing Trade Deals

State Sues BP for Oil Spill Damage

Fabiola Carrion — Thu, 19 Aug 2010 13:40:26 -0400

State governments are finally taking action to address the catastrophic damage caused by the oil spill in the Gulf of Mexico. The Office of the Attorney General of Alabama has filed before a U.S. District Court a complaint against British Petroleum for what it describes as the largest marine oil disaster in the history of the United States.

The state of Alabama also sued co-defendant companies Transocean Ltd., Halliburton Energy Services, Inc., Anadarko Petroleum Corp., Mitsui & Co., and Cameron International Corp. All defendants, the complaint states, "negligently and wantonly failed to take appropriate measures to prevent damages [to the State]." As a result, Alabama is enduring damages to its natural and environmental resources, including the loss of use of state property, taxes, revenues, and other income; which in turn has also incurred damages associated with oil disaster response actions.

The lawsuit has received bi-partisan support in the state, including the two contenders for the gubernatorial post.

In addition to this lawsuit, BP has received 142, 400 claims representing all 50 U.S. States. The claims represent the havoc created upon communities and businesses that we discussed in a previous Dispatch. For instance, in a state that heavily relies on tourism like Florida, hotel operators say visitors are deciding not to travel to the state under the impression that the beaches are tarred by oil. It is evident that states will have to look into various ways to ensure that these corporations are held liable for their grossly negligent actions and that every resident gets compensated for the losses they have and will continue to bear.

In Wake of BP Oil Spill, More to Be Done by Gulf States

Drew Harris — Thu, 05 Aug 2010 16:17:57 -0400

Even as officials announce that the oil leak has finally been capped, residents of the Gulf Coast have only just begun what is sure to be a long, difficult period of renewal following April’s Deepwater Horizon disaster. Beyond the tragic loss of life on the rig and the oil spill’s devastating environmental toll, the catastrophe has wreaked havoc upon communities and businesses along the coast that depend on the Gulf’s waters for employment – and they currently lack many of the tools and resources they’ll need to restore the region back to its full potential.

Vacancy on State Leadership: Amidst all this misfortune lies the fact that many public figureheads deny that that there is a role for states to play in the cleanup. Robert Mann, a professor at Louisiana State University, explains, “Everything goes back to looking at BP and the feds to fix the problem. I don’t hear anything, even from [Governor] Jindal. It’s all, ‘How do we force BP to fix it?’” The federal response has been well-coordinated and highly centralized, but so far many state governments along the Gulf Coast have done little on their own to mitigate the effects of the spill.

For example, Louisiana, which has borne the brunt of the spill’s economic fallout, only passed a resolution declaring a statewide day of prayer for those affected by the spill. Passed in isolation, this bill is a slap in the face to those who’ve lost the most from this disaster.
The Mississippi State Legislature, which has been out of session since April, has not reconvened to address the oil spill.
Florida Governor Crist’s proposal for a constitutional amendment to ban offshore drilling in state waters was quickly shot down in a special session.

Job Losses in the Gulf States: Meanwhile, economic conditions along the coast continue to worsen. Recent data from the Louisiana Workforce Commission reveals rising unemployment in Louisiana. In fact, Louisiana was one of only five states nationwide to see an increase in unemployment in June, suggesting that the oil spill has played a role in the state’s employment crisis. More broadly, Moody’s Analytics estimates that up to 100,000 jobs could be lost throughout the coastal region – with up to 17,000 of those lost by the end of this year alone, along with 1.2 billion dollars in output. One study finds that one in five households in Louisiana and Mississippi have seen their income decrease as a result of the oil spill and 8 percent of residents have lost jobs

These economic losses, which have hardest hit the labor-intensive industries of fishing and aquaculture in Louisiana and the tourism industry in Florida, mean that the only thing keeping local workers – many of whom live paycheck to paycheck – solvent is their participation in the cleanup effort. Most fishermen participate by leasing their boats or offering their labor – though BP’s payout policy is itself less than fair. Under current policy, workers who earn money assisting with the cleanup will see that amount deducted from their claim against BP.

Options for State Action: How can states help their coastal regions? One important step is to ensure that the waste contaminated by the spill is disposed of properly. Louisiana’s solid waste response plan for the BP spill was adopted from the Hurricane Katrina plan – except, as Darryl Malek-Wiley, a field organizer for Sierra Club New Orleans, sees it, “an oil spill is not a hurricane, and I feel we’re not disposing of the oil-soaked waste in a proper way.” Not only is the waste toxic, he says, but it is quickly filling up landfills in Mississippi that were meant to last for many more years and will now need to be supplemented at taxpayer expense. Malek-Wiley also suggests that coastal states enact so-called “bounty hunter provisions,” under which citizens are rewarded financially by the state for filing lawsuits against corporations that break environmental laws.

State officials can also support constituents who have experienced property damage by helping them receive proper reimbursement. In Florida, Governor Crist signed an executive order authorizing property appraisers in coastal counties to reassess homes and businesses if a loss of value appears likely. This will help members of coastal communities file claims against BP. If necessary, lawmakers can also consider allowing property taxes to reflect updated (and downsized) property values; under current Florida law, the governor does not have the authority to do this.

To help coastal workers, states can ensure that assistance is available for workers who were paid “under the table” in years past and therefore do not have documentation to show they were working before the oil spill. Without such documentation, it is nearly impossible for them to receive any compensation from BP. Alternatively, states can consider bolstering or emulating local charities, such as Horizon Relief, which do not require documentation.

State Legislators in the Gulf Call for Action: Finally, state lawmakers nationwide can sign the Coastal States Caucus’s letter to President Obama requesting that the federal government:

Ensure responsible parties are held liable;
Lift the cap on liability by drilling companies;
Create a Gulf Coast and Estuaries Restoration Fund that, in the future, can expand its focus to support other coastal, ocean and Great Lakes restoration;
Establish a Dedicated Ocean Trust Fund to support long-term marine and coastal stewardship; and
Finalize and Implement the Interagency Ocean Policy Task Force Recommendations.

You do not need to be a Coastal States Caucus member to sign on. You can add your name at http://tinyurl.com/263lx3p.

Supreme Court 2009-2010: Pro-Corporate, But Continued Trend Towards Deferral to State Authority

Nathan Newman — Tue, 29 Jun 2010 11:26:57 -0400

Yesterday, the Supreme Court ended its term with a bang with a ruling in McDonald v. City of Chicago that state gun control regulations can be struck down by federal courts based on the Second Amendment. While the number and scale of blockbuster decisions was not so high this session, the singular impact of the Citizens United case earlier in the term unleashing unregulated corporate money on elections, combined with the dangerous implications of the Rent-A-Center, West v. Jackson arbitration decision, emphasizes the pro-corporate bias the Supreme Court has increasingly exercised in recent years.

As detailed below, other decisions on public university governance of student groups, property rights challenges to beach restoration programs and regulation of ballot initiative processes, did continue the trend in recent terms of the Supreme Court deferring to state authority in major cases. And criminal justice cases continued to be a mixed bag of protecting individual rights versus upholding state discretion.

Table of Contents:
- Citizens United and the Supreme Court’s Pro-Corporate Bias
- Supreme Court’s Deferral to State Authority
- Criminal Justice
- Conclusion

Citizens United and the Supreme Court’s Pro-Corporate Bias

There is little question that Citizens United will be one of the major cases that defines this year’s term—and in many ways will frame the legacy of the rise of Chief Justice John Roberts and Justice Samuel Alito whose presence on the court has led to the dismemberment of campaign finance regulation.

"A Massive New Threat of Corruption and Corporate Control": With Citizens United, the Supreme court has given corporations the same free speech rights as individuals and allowed unlimited election spending by corporations when not coordinated with candidates.

U.S. Senator Sheldon Whitehouse of Rhode Island said recently,

The Citizens United decision -- yet another 5-4 decision [opens] our democratic system to a massive new threat of corruption and corporate control. There is an unmistakable pattern. For all the talk of umpires and balls and strikes at the Supreme Court, the strike zone for corporations gets better every day.

To emphasize its hostility to restrictions on the power of the wealthy over our elections, the Supreme Court ordered a freeze of Arizona's public financing matching funds system which gives candidates participating in public financing additional funds when opponents spend above benchmarked levels of spending. This means that publicly-financed candidates will be eligible to receive only one-third of the money to which they'd otherwise be entitled.

Letting Corporate Arbitrators Decide if Their Own Decisions are Unfair: In Rent-A-Center, West v. Jackson, the Supreme Court - by the same pro-corporate 5-4 vote lineup of Justices - further closed the courthouse door for individuals abused by their employers. The Court held that employees cannot only be forced to have complaints about racial discrimination or other employer abuses decided by private arbitrators (a reality decided in previous terms), but also that where an employee feels the terms of the arbitration agreement are unfair and unconscionable, it is up to the corporate-chosen arbitrator to decide if the arbitration agreement is unfair. In this case, for example, the arbitration agreement limited claims an employee might bring against the employer, while exempting those claims that Rent-a-Center might raise, and restricted an employee’s ability to gather evidence.

Instead of allowing a judge to decide whether the agreement to arbitrate could be enforced, the Supreme Court majority leaves it to the arbitrator chosen by the agreement alleged to be unfair to decide the issue, cutting off access to the courts even for the most basic threshold issue of whether these arbitrators and the rules imposed are a fair substitute for a day in court.

Privatizing Democracy: So just as corporations now have unlimited rein to use their money without regulation to dominate elections, those same corporations now have de facto have authority to run private courts to decide the legal rights of their own employees without little or no judicial restraint.

Supreme Court’s Deferral to State Authority

However, beyond these pro-corporate decisions, the Supreme Court, often with surprising configurations of majorities, continued its trend in recent years of deferral to state authority in more cases where core corporate interests are not at stake.

States and the Second Amendment: The exception to the trend this year was McDonald v. City of Chicago, which extended the Second Amendment to restrict state gun regulations. But even in that case, the majority went out of its way to affirm that many traditional gun control regulations will still be upheld even where an individual right to keep firearms for self-defense in the home is protected. Since most states have their own constitutional and statutory reasonableness test for gun regulations, the practical effects of McDonald may end up being relatively limited.

Rejecting “Takings” Doctrine: While right-wing constitutional lawyers for years hoped to create a majority to limit most local government land regulations as illegal “takings” under the Constitution, the Court in Stop the Beach Renourishment v. Florida Department of Environmental Protection not only rejected a property rights challenge to a state beach-erosion statute, but Justice Anthony Kennedy refused to even give a fifth vote to the proposition that a court ruling could ever constitute a “taking” of private property, a sign that most reasonable land use regulations will be protected from federal judicial second-guessing in the future.

Universities and Groups Excluding Gay Students: In Christian Legal Society v. Martinez, state universities retained their authority to deny funding to student groups that exclude certain students, such as gay and lesbian students, from membership. The Court upheld the University of California-Hastings' policy of requiring student groups to take on "all comers" as a prerequisite to official school recognition as a reasonable and viewpoint neutral restriction.

Public Disclosure of Ballot Initiative Signers: Given increasing use of fraud by those promoting right-wing ballot initiatives, progressives won an important victory in Doe v. Reed, in which the Court held that disclosure of signers of political ballot initiatives did not generally violate the First Amendment (although they might be able to in the future argue that specific harms could lead to some restriction on disclosure in a future case). In a strong argument for respecting state regulation of ballot initiatives, Justices Sotomayor, Stevens and Ginsburg wrote:

These mechanisms of direct democracy are not compelled by the Federal Constitution. It is instead up to the people of each State, acting in their sovereign capacity, to decide whether and how to permit legislation by popular action. States enjoy “considerable leeway” to choose the subjects that are eligible for placement on the ballot and to specify the requirements for obtaining ballot access (e.g., the number of signatures required, the time for submission, and the method of verification).

Reviewing Public Employee Text Messages: In a slightly idiosyncratic case, the Court in City of Ontario v. Quon unanimously held that a police department’s decision to review the text messages of employees who exceeded the monthly limit on their office pagers in order to determine whether the monthly limit should be raised was reasonable under the Fourth Amendment.

Criminal Justice

Criminal justice decisions by the Supreme Court invariably combine a combination of invocation of individual rights, discussions of state authority and obscure procedural explorations. While cases this term had few singular disruptions of previous principles, they had a number of clear incremental changes effecting state criminal proceedings. (See this ACLU writeup for an extended list of additional cases).

State Convictions and Immigration: Of import for current debates on the role of states in immigration policy, the court ruled in two cases that courts had to carefully weigh how state criminal statutes interact with federal deportation rules:

In Padilla v. Kentucky, the Court held that attorneys have an obligation to carefully advise their clients of the immigration consequences of pleading guilty. In this case, the defendant– a lawful permanent resident for 40 years who pled guilty to drug trafficking – was incorrectly advised by his lawyer that he was unlikely to face deportation because of his long stay in the United States.
In Carchuri-Rosendo v. Holder, a unanimous Court ruled that defendant’s conviction for possession of a single Xanax tablet without prescription, following an earlier state court conviction for possession of less than two ounces of marijuana, could not qualify as an aggravated felony under federal immigration law, and thus did not render the petitioner ineligible for potential discretionary relief from deportation.

Restricting Miranda: The Court significantly limited restrictions the Miranda “right to remain silent” in a series of cases limiting the Miranda ruling:

In the most critical case, in Berghuis, Warden v . Thompkins, a 5-4 decision of the Supreme Court affirmed that a suspect did not properly invoke his right to remain silent, so statements were properly admitted in court. Justice Sotomayor, writing for four dissenters said, “the Court today creates an unworkable and conflicting set of presumptions that will undermine Miranda’s goal.”
In Florida v. Powell, the Court held that police warnings that a suspect had a right “to talk to a lawyer before answering any questions” adequately complied with Miranda, since the right does not require a particular set of words for police compliance.
In a 6-3 Graham v. Florida decision authored by Justice Kennedy, the Supreme Court found a Florida law unconstitutional under the Cruel and Unusual Punishments Clause where juvenile offenders could be sentenced to life in prison without parole for a non-murder.
In Maryland v. Shatzer, the Court held that police did not violate the law by collecting incriminating statements from a person who had invoked his Miranda rights two and a half years earlier, and that the right against interrogation lasts only 14 days after invocation.

In other key decisions effecting state proceedings:

In Bobby v. Van Hook, Wong v. Belmontes and Porter v. McCollum, the court created a series of new standards for when counsel is so ineffective as to warrant a new trial.
In Presley v. Georgia, the Court concluded that a defendant’s Sixth Amendment right to a public trial had been violated when the public was excluded from the jury voir dire proceedings.
In Holland v. Florida, a 7-2 decision authored by Justice Breyer, the Court agreed that an attorney could harm his client so badly that the defendant’s time to seek habeas must be extended.

Conclusion

Elana Kagan’s likely replacement of Justice Stevens on the Court is unlikely to change the broader trends on the Court and states will continue to face the challenge of reining in the corporate election spending unleashed by Citizens United and protecting access to justice in the courts eroded by the Rent-a-Center case. As People for the American Way wrote in a recent report, Rise of the Corporate Court: How the Supreme Court is Putting Businesses First, “the conservative-tilting Court has reached out to enshrine and elevate the power of business corporations.”

While deferral to state authority has emerged as an increasing consensus among the Justices on a number of issues, lurking in the dissents of the most conservative Justices are even more extreme pro-corporate and right-wing views that with one more ally could push legal doctrine in ways that would completely erode democratic decision-making over economic and social policy. So even the more positive trends on the Court warrant only partial relief, since small changes in personnel in the future could readily enable the more activist impulses of the block of the four most right-wing members of the Court.

Resources:
Progressive States Network - The Supreme Court and the States 2008-2009: Trend Defending State Authority Emerges this Term
Scotusblog - Everything you read about the Supreme Court is wrong
ACLU - ACLU Summary of the 2009 Supreme Court Term
People for the American Way - Rise of the Corporate Court: How the Supreme Court is Putting Businesses First
Alliance for Justice - The Corporate Court

Landline Phone Deregulation to Deny Protection to Illinois Consumers

Fabiola Carrion — Thu, 24 Jun 2010 13:19:02 -0400

Illinois has enacted a law that will take away a necessary protection for landline phone consumers. SB 107 strips away the authority of the Illinois Commerce Commission to ensure that landline phone users – residing in 78 percent of households in the state - receive reliable and affordable phone service.

Under the law, Internet-based phone services would be completely unregulated. The ICC has been instrumental in promoting universal access to telecommunications services in the state, as mandated by the state’s Telecommunications Act that was last updated in 2001. It required a service provider to offer high-speed Internet access to at least 90 percent of homes outside of the Chicago Metropolitan area. This newly enacted law eliminates such requirement and the ability of Illinoisans to access affordable High-Speed Internet services. Consequently, the law threatens to reduce investment in broadband that could make the state more competitive in the global market.

Supporters of the law say that it will create competition and profits that will in turn translate into the creation of new jobs and services. However, a review of the bill reveals that employment generation is nowhere in its contents. Labor representatives in other states have confirmed that deregulation of telephony has driven down employment in the industry.

Moreover, a decrease in oversight is likely to result in higher costs for phone usage. Even supporters have acknowledged that prices for services could increase. Quality will also be affected by the law. Instead of requiring repair of landline service within 24 hours, the waiting window will be extended to 30 hours. Further, consumers will be unable to lawfully demand service quality standards from telecommunications companies.

Other Deregulation Attempts Blocked in Colorado and Wisconsin: A similar bill in Colorado, which was thankfully vetoed by the Governor, threatened to deregulate basic telephone service and negatively affect pricing and service quality. HB 1281 would have removed all authority from the Colorado Public Utilities Commission to regulate phone services. The bill would have also stripped away price and service-quality guarantees overseen by the Colorado PUC. In Wisconsin, SB 469 was introduced to also deregulate landline telephone business and leave residents, especially from rural areas, without adequate service. Consumer groups in Wisconsin have also voiced their concern that less regulation could lead to less investments in broadband infrastructure.

Massive Rate Hikes in California Following Deregulation: After abandoning oversight of the telecommunications, California consumers experienced hikes ranging from 50 to 276 percent in the following features: select custom calling services, local directory assistance, fees for returned checks, local toll rates, fees for having an unlisted numbers, and fees for late payments. And the promise to a competitive playing field that would create jobs and increase customer choices has not occurred.

Resources:
Citizens Utility Board - Talking points on rewriting Illinois’ Telecommunications Act
Chicago Tribune - New Illinois Law Relaxes Phone Regulations
Denver Post - Consumer Group Fears Bill May Spur Phone-Service Deregulation
Public News Service - AARP Blasts “Future of Phone Service” Deregulation Bill on Gov’s Desk
Utility Consumers' Action Network - California's Telco Deregulation Fiasco: Finding Alternative Phone Service in a Competitive Wasteland
Stop the Cap! - Wisconsin Deregulation Follies: AT&T Wants State to Make the Same Mistake All Over Again

Payday Lending Abuses Reined In, As Colorado Joins Other States in Reform

Cristina Francisco-McGuire — Mon, 17 May 2010 12:37:16 -0400

The payday lending trap has been shorting working families to the tune of nearly $5 billion per year ever since the industry exploded onto the scene in the 1990’s. The number of payday lending institutions has jumped exponentially from 500 in 1990 to about 22,000 today (compared with 14,000 McDonald's), mainly targeting low-income African American and Latino communities.

But two weeks ago, Colorado enacted payday industry reforms, squeaking by with a one-vote margin in the Colorado House. Though lenders can still charge a $75 origination fee as well as monthly fees of up to $30 on top of interest, the bill addresses cycles of debt by capping APR interest rates at 45% and mandating that borrowers be given as long as six months to pay back loans.

Colorado’s joins sixteen other states and the District of Columbia which have already passed limits on interest rates for short-term loans, ranging from 17 percent to 60 percent.

Beyond Capping Interest Rates: A number of other reforms have been enacted or proposed in other states to prevent workers being bled dry by payday loans, including:

Oregon approved SB 993, which toughened existing predatory lending regulations by requiring any lender that derives more than 10% of its business from payday loans to acquire a license from the Dept. of Consumer and Business Services to conduct business, on top of the licenses already required by state and local law. The new law also creates new notice, reporting, and regulatory compliance requirements for payday lenders, the non-compliance of which can result in fines and other penalties.
Illinois’ HB 537 caps the APR on payday loans to 99%, indexes the loans based on the borrower’s ability to pay, and would require loans to be paid off in equal monthly installments with no balloon payments. After passing the House in April, it cleared the Senate in May and is waiting for a concurrence vote in the House.
The Ohio House passed HB209, which limits fees charged by payday lenders. Though Ohio already caps APRs at 28%, the fees were a way for lenders to get around regulations. Though it faces a tough battle in the Senate, Gov. Ted Strickland supports the legislation.
SB 193 passed both houses of the New Hampshire legislature, and establishes a 36% APR cap on all small loans under $10,000, including payday loans.
Though Iowa’s HF 2127, which would give payday lenders the option of capping the APR for loans at 36% or limiting the number of loans per borrower at six per year, was one vote short of moving out of a subcommittee, momentum is building. After 60 members of the Iowa Citizens for Community Improvement managed to shut down the operations of an Ace Cash Express in Des Moines in December 2009, Des Moines City Council members voted unanimously on May 13, 2010, to a six-month moratorium on new payday loan stores in the city.

Unfortunately, two states passed weaker legislation designed to appease the payday lending industry, throwing consumers under the proverbial bus in the process. Utah and Wisconsin both caved to threats that the industry would shed jobs with further regulation, approving bills that stopped short of requiring much-needed limits on interest rates.

Stopping Steps Backward: Advocates are also working to defeat legislation in California, AB 377, that would be a huge step backward, increases the maximum payday loan amount from $300 to $500 and allows lenders to charge consumers an APR as high as 459% for a two week loan. It would also establish de facto legalization of internet payday lending. It passed the Assembly in May 2009 and is awaiting a hearing in the Senate Judiciary Committee.

See the Center for Responsible Lending for more of the latest news on payday lending reform here. For a useful infographic on how payday lending works, visit The Consumerist.

Resources:
Center for Responsible Lending - Pay Day Lending
Coloradans for Payday Lending Reform
Consumer Federation of California, “CFC Opposes AB 377 (Mendoza) – Pro Payday Lenders, Anti Borrower”
Consumerist - How Predatory Lending Works, From Payday Loans To Rent-To-Own

Financial Reform: Keep State AGs and State Law on the Beat Against Predatory Lending Practices

Nathan Newman — Mon, 10 May 2010 12:22:39 -0400

As Congress debates federal financial reform legislation, a key priority for financial industry lobbyists remains gutting provisions that would strengthen enforcement by state attorneys general and stopping the partial restoration of state powers to regulate national bank abuses against consumers. As we detailed three years ago, much of the damage to communities from subprime lending might have been avoided if the Bush Administration had not been able to shut down most state anti-predatory lending laws early in the decade.

Strengthening state power to regulate abuses by national banks has been a priority for reformers from the beginning of the financial reform process. While the bill approved in the House and the current leadership proposal in the Senate are not as strong in preserving state enforcement powers as some early proposals, under them state attorneys general would still retain the power to enforce federal law against national banks. Federal authority to preempt state banking laws would also be more limited than under our current laws. One broad amendment to keep current bad federal preemption of state banking laws was rejected last Thursday, although most conservative Senators voted for it. (Note that "states' rights" inevitably lose out in conservative hands when corporate interests want federal power to trump state regulations).

Stopping Bad Senate Deals on Preemption: Newspapers continue to report on deals being negotiated between conservative Democrats and Republicans to undermine state regulatory authority, even as national consumer leaders continue to speak out against any further preemption compromises. A letter sent to Senators on Friday by Americans for Financial Reform, a coalition made up of over 250 consumer, labor and civil rights groups, highlights the key arguments for why expanding state authority is so critical, including:

"Help from state AGs is critical to ensuring that consumers have at least minimum protections against reckless Wall Street practices. In addition, consumers are much more likely to complain to, and get a response from, state-based enforcement agencies."
"States need to be able to address new problems before they spread nationally, without waiting for federal regulators to notice them and respond... States that had tough anti-predatory lending laws (until they were preempted) had lower foreclosure rates than states without those laws. After state laws were preempted, national banks made riskier loans."
"It is critical to require a case-by-case assessment of state laws for purposes of federal preemption rather than permitting state laws to be wiped out broadly without due consideration for each law... the protections in the bill against excessive preemption need to be strengthened, substantively and procedurally, to ensure that the [federal government] must undertake a serious inquiry and not a pro forma one."

With critical votes happening all this week, Americans for Financial Reform has an action page with key alerts and tools for contacting Congress to express the need for real financial reform, including keeping authority in the states to protect consumers from national bank abuses.

Resources:
Progressive States Network - The Predatory Lending Bubble and How the Feds Made it Worse
Progressive States Network - Protecting State Consumer Protection from Preemption in Federal Financial Reform
Americans for Financial Reform - Elizabeth Warren and Attorney General Lisa Madigan Speak Out Against Preemption Deal
Americans for Financial Reform - Keep State Attorneys General On The Predatory Lending Beat: Oppose Amendments To Further Preempt State Authority

Banks Take Advantage of States in Fiscal Crisis

Altaf Rahamatulla — Thu, 04 Mar 2010 12:13:02 -0500

The same large banks whose unregulated actions were primary contributors to the economic downturn have also been manipulating state and local governments to profit from budget deficits for years.

Essentially, banks are alluring states with the promise of a means to cut borrowing costs and increase returns through the use of an interest rate swap. The mechanism is a derivative that allows cash-strapped municipalities and states to exchange interest payments on a variable bond deal for an allocation of funds from a bank. So, the bank would establish a fixed rate on the bond and swap for the variable "interest rate of the bond that was set by larger macroeconomic forces, such as the Federal Reserve." Unfortunately, the results have been disastrous.

These type of deals are losing propositions for states and municipalities. Under unfavorable marketing conditions, interest payments and fees associated with these deals can jump dramatically. Since the federal government decreased interest rates to shore up financial institutions, the banks were able to profit tremendously while budget gaps at the local and state level continue to grow. As Mike Elk from the Campaign for America's Future explains:

"While banks are still collecting fixed rates of from 4 percent to 6 percent, they are now regularly paying state and local governments as a little as a tenth of one percent on the outstanding bonds...Banks and states were supposed to be paying equal rates. However, with the Fed lowering interest rates, which was anticipated, now states and local governments are paying about 50 times what the banks are paying...To make matters worse, these state and local governments have no way of getting out these deals. Banks are demanding that state and local governments pay tens or hundreds of millions of dollars in fees to exit these deals."

The deals have cost state governments and taxpayers almost $28 billion in interest and fees at a time when states are already collectively facing billion dollar deficits and considering huge cuts to essential public services.

Some of the areas in the country that are being hit the hardest have amassed massive debt as a result of similar deals. For instance, Detroit, with an unemployment rate of almost 15 percent, entered a derivatives deal with UBS and other banks that supposedly permitted $2 million in annual interest savings on $800 million worth of bonds. In order to protect against losses, the deal carried a stipulation that if Detroit's credit rating dropped, the banks could negate on its obligations and charge a breakup fee. As the city's credit rating plummeted during the recession, it found itself in a position of owing over $400 million. Now, the city is using casino revenue to pay $4.2 million in monthly payments to the banks. The city must pay the banks before considering funding other services.

Similar to U.S. Representative Elijah Cummings' (D-MD) comments on the use of bailout funds, the banks are basically "slapping these American taxpayers in the face by continuing the...business-as-usual attitude." Fortunately, states are taking proactive steps to confront these issues.

Pennsylvania State Auditor General Jack Wagner called on the legislature to prohibit municipalities and school districts from entering interest rate swap contracts. He stated, "[q]uite simply, the use of swaps amounts to gambling with public money. The fundamental guiding principle in handling public funds is that they should never be exposed to the risk of financial loss. Swaps have no place in public financing and should be banned immediately.”
Tennessee Comptroller of the Treasury Justin P. Wilson recommended the state place limitations on variable rate debt for financing projects.

Some states are even considering the creation of state-owned banks to protect against the abuses of private banks, foster public accountability and fiscal integrity, increase local economic development investments, promote competition, and expand lending to small businesses. North Dakota, with a 4.4 percent unemployment rate and a $700 million budget surplus last year, is home to the country's only state-owned bank.

Legislative and gubernatorial candidates in Florida, Oregon, Idaho Illinois, and California have floated the idea of creating a state bank.
Massachusetts Sen. President Therese Murray and Virginia Del. Bob Marshall each advanced initiatives in their respective states to study the creation of a state bank.
Washington Rep. Bob Hasegawa introduced HB 3162 this year, a bill that would create a state-owned bank.

Resources:
Bankster USA
Business Week - Wall Street Plays Hardball
Campaign for America's Future - How Big Banks' Interest Rate Schemes Bankrupt States
YES! Magazine - Whose Bank? Public Investments, Not Private Debt