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It’s Friday, March 17, and we’d like to welcome you to the weekly State and Local Roundup. This week, a second bank failed and a third narrowly avoided collapse, following the implosion of Silicon Valley Bank last week. The troubles in the banking industry have already caused headaches for state and local officials and could cause even bigger problems down the road.
After the federal government took control of Silicon Valley Bank, New York state regulators and the Federal Deposit Insurance Corp. on Sunday closed Signature Bank, which suffered from losses associated with cryptocurrency. Major banks agreed Thursday to rescue First Republic Bank with a $30 million package.
Affordable housing: One of the immediate impacts of Silicon Valley Bank’s implosion was delaying up to 500 new units of affordable housing in California.
In San Francisco, for example, the collapse stalled the closing on The Kelsey, a 112-unit affordable housing project near the Civic Center. It was supposed to break ground this week with a $52 million loan from the Silicon Valley Bank.
The failures come as California is trying to build more affordable housing to combat sky-high rents and home prices. Developers are confident other lenders will step in to replace Silicon Valley Bank, but delays can make those projects more expensive.
Pensions: At least three state pension funds have reported investment losses as a result of the collapse of Silicon Valley and Signature banks, although the damage is just a dent in the funds’ overall investments.
The pension system for Ohio’s retired teachers lost between $27 million and $40 million when Silicon Valley Bank failed last week. “That appears to be by far the biggest investment by a public pension system in the United States,” reported The Ohio Capital Journal.
The financial crisis has impacted other pension funds, including North Carolina’s state pension fund and California’s public employee retirement fund.
The North Carolina Retirement System has $10.1 million in Silicon Valley Bank stock and another $7.8 million in Signature Bank stock, the state treasurer confirmed Wednesday. Treasury spokesman Frank Lester said that the state is “unsure at this time” if the money will be recovered.
The California Public Employees’ Retirement System has $67 million of exposure to the failed Silicon Valley Bank and $11 million exposure to Signature bank, said CIO Nicole Musicco at a board meeting Monday.
“Those are the assets at risk, likely at a loss, but in the grand scheme of things, a small percentage of our overall portfolio,” Musicco said.
Economic uncertainty: The bigger worry for state and local governments is that these banks’ troubles will inject new fears into an already uncertain economy. The bank troubles helped spur Goldman Sachs to up its prediction of a recession within the next 12 months to 35%.
In Colorado, the unrest is clouding the state’s efforts to forecast its budget.
The legislature’s Joint Budget Committee, which sets the state’s budget, heard economic forecasts on Thursday—the last before the legislature sets the budget for the upcoming fiscal year.
Legislative economist Louis Pino acknowledged that the forecast couldn’t include the rapidly changing circumstances in the financial industry, noting “whether this bank closure is a symptom of a larger problem remains unclear.”
The banks’ collapse also comes as governors are trying to sell their economic agendas to lawmakers.
Yvonne Hao, the Massachusetts economic development secretary, told Politico’s Massachusetts Playbook that the fallout “impacts us more” than some states because of the Bay State’s focus on technology, life sciences and innovation.
Silicon Valley and Signature banks were known for serving startups and venture capital firms. As the startup ecosystem takes a hit as a result of the failures, Hao said Massachusetts companies will likely be affected.
“SVB was a big lender of venture debt, so that’s going to impact startups and their ability to survive,” Hao told Playbook. “It could be a couple of years where it’s going to be much harder to start or grow companies. … We’re thinking through already what are some ways the state can partner with our communities.”
Make sure to come back here every Friday for the week’s highlights. If you don’t already and would prefer to get it in your inbox, you can subscribe to this newsletter here. Have a great weekend.
News to Use
Trends, Common Challenges, Cool Ideas, FYIs, and Notable Events
- SNAP and work requirements. Nearly two dozen Republicans are trying to make it harder for Americans to receive food stamps, introducing a bill Tuesday that would change eligibility requirements for the Supplemental Nutrition Assistance Program or SNAP benefits. U.S. Rep. Dusty Johnson, a South Dakota Republican, is the lead sponsor of the legislation that would end a waiver program that allows states to bypass work requirements for some of their residents. Currently, 18 states are using waivers that exempt residents from work requirements. The legislation is likely to be a point of negotiation between the two major political parties as Congress is set to vote this year to reauthorize the farm bill.
- Conservatives continue DEI assault. Florida remains unable to enforce the “Stop-WOKE” law touted by Gov. Ron DeSantis following a federal appeals court ruling Thursday that keeps on hold the policies restricting what can be taught in Florida’s public colleges and universities. Meanwhile, state lawmakers in 13 states have introduced at least 21 bills since December modeled after Florida’s law that aim to restrict colleges’ efforts to improve diversity, equity and inclusion, reports The Chronicle of Higher Education. Legislatures in Iowa, Kansas, Missouri, South Carolina and Texas have considered bills prohibiting so-called DEI learning in universities and colleges in the last two weeks. And even though the law is on hold, Florida continues its assault on “woke indoctrination” in public schools as it scours social studies textbooks for hot political topics.
- State school takeover. The Texas Education Agency on Wednesday announced a state takeover of Houston’s nearly 200,000-student public school district, the eighth-largest in the country. The move to replace the district’s elected board is the culmination of years of fighting over poor academic ratings at a single campus in the district, according to TEA Commissioner Mike Morath. A 2015 state law requires a state to close a school or take over the district if that school receives failing grades from the state for five consecutive years, as Phillis Wheatley High School did in 2019. Democrats assailed the move as political.
- L.A. labor woes could end in a strike. The Los Angeles teachers union will join thousands of L.A. Unified’s non-teaching workers in an anticipated three-day strike that would likely shut down schools next week. The labor action would be led by Local 99 of Service Employees International Union, which represents 30,000 cafeteria workers, bus drivers, custodians, special education assistants and others. Local 99 would be joined by United Teachers Los Angeles, which represents about 35,000 teachers, counselors, therapists, nurses and librarians. Local 99 has reached an impasse with the district in months-long negotiations for an across-the-board 30% raise and more for the lowest earners.
- Voting politics. Democrats in the New Mexico Legislature approved a bill to expand voting rights and accessibility on Monday. The bill would require ballot drop boxes in every county, restore the right to vote to people convicted of felonies and implement automatic voter registration. It also included the Native American Voting Rights Act, which expands early voting opportunities, boosts resources and changes precinct boundaries to align with tribal boundaries. Gov. Michelle Lujan Grisham is expected to sign the bill, which passed along party lines. Meanwhile, three more Republican states withdrew from the Electronic Registration Information Center, or ERIC, a multistate partnership that experts across the political spectrum say is the only reliable, secure way for states to share voter registration data with each other.
- Ohio sues over train derailment. Ohio sued Norfolk Southern Railway to recover the state’s costs for responding to the train derailment in East Palestine, Republican Attorney General Dave Yost announced Tuesday. The 58-count federal lawsuit is the state’s strongest rebuke of Norfolk Southern since a train spilled hazardous materials into the air, water and soil in February, rattling the small village of 4,700 along the Ohio-Pennsylvania border.
- Regulating “forever chemicals,” gun control and drilling. It was a big week for the Biden administration. On Tuesday, it proposed strict limits on six forever chemicals in the nation’s water supply. The Environmental Protection Agency proposed legal limits of two of those chemicals —perfluorooctanoic acid (PFOA) and perfluorooctane sulfonic acid (PFOS)—in drinking water to under four parts per trillion and imposed limits on four other substances, as well. President Joe Biden also announced fresh measures meant to curb gun violence, directing the attorney general to make sure gun dealers are complying with existing background check laws. Plus, the administration announced new limits on Arctic drilling in an apparent effort to temper criticism over the $8 billion Willow oil project in Alaska, which has faced sharp opposition.
- Child labor laws. States across the country are attempting to weaken child labor protections, just as violations of these standards are rising, according to the left-leaning Economic Policy Institute. The group issued a report this week that identifies 10 states as introducing or passing bills weakening child labor standards in the past two years alone. Last week, Arkansas Gov. Sarah Huckabee signed a measure loosening child labor protections in the state. The Youth Hiring Act of 2023 will allow children under 16 to work without obtaining permission from the division of labor.
- Illinois workers get paid leave. Illinois Gov. J.B. Pritzker signed into law a bill that mandates paid leave for Illinois workers. The law, which takes effect Jan. 1, 2024, grants employees of businesses of any size one hour of paid leave for every 40 hours worked, up to a maximum of 40 hours per year.
- S.F. considers reparations. San Francisco supervisors have shown broad support for a draft plan to provide reparations to the city’s Black community, but they have not yet decided the fate of the most ambitious recommendation: $5 million lump-sum payments to an unknown number of eligible recipients. A reparations committee also recommended that the city should provide longtime Black residents with scholarships or student loan debt relief, better health facilities and better access to low-income housing. “Centuries of harm should be met with centuries of repair,” Eric McDonnell, the committee chair, said at the hearing. “This is not a one and done. We have collective work to do to put folks back on the right path.”
Picture of the Week
This Tuesday, March 14, was Equal Pay Day. The date symbolizes how far into the year women must work to earn what men earned in the previous year, says the National Committee on Pay Equity. The above map shows what the gender pay gap is in each state. As of 2019, the national earnings wage gap by sex in the U.S. was $10,150, according to the Census Bureau.
What They’re Saying
“Whose job was it to do a simple Google search? No one in City Hall, not one person did a Google search, so maybe we need a transformation of City Hall ’cause not one person said, ‘Let me go and Google and figure out this was a fake city.’”
—Newark, New Jersey, resident Shakee Merritt on the city getting scammed. Newark was about to become a Sister City with the Hindu nation of Kailasa, but there was one problem—the nation doesn’t exist. Kailasa is the brainchild of Swami Nithyananda, a notorious scam artist and fugitive from India who has been on the run from rape charges since 2019, according to CBS News.
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Seattle Explores a Different Approach to Affordable Housing
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Feds Seek Input on How to Create Semiconductor Hubs
The Commerce Department wants stakeholders’ “best ideas” for new research and manufacturing hubs for computer chips that could transform communities nationwide.
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