spending

There are about 2,000 safety-net clinics in California that deliver primary care to underserved populations. Proposition 44 would set limits on how these federally qualified health centers spend their money.

The basics

Proposition 44 asks voters to require federally funded community health centers to spend at least 90% of their total annual revenue on “program services advancing their charitable purpose.”

The impact

If the proposition passes, the state attorney general will be responsible for determining what services fall into that category. If spending on administrative or non-healthcare functions exceeded 10% of total revenue, a clinic would have to pay a penalty equal to the amount it overspent.

Dig deeper

Proposition 44 was backed by the Service Employees International Union-United Healthcare Workers West, the same union that is pushing Proposition 40, the controversial billionaire tax. The union appears to be the main supporter of the proposal and says the restrictions would prevent excessive spending on executive salaries, fundraisers and other administrative expenses.

There is a diverse array of opponents, including the California Medical Assn., the California Teachers Assn., the Planned Parenthood Affiliates of California, the state Democratic Party and the state Chamber of Commerce. They say the proposition’s vague wording could result in vital services being excluded from the list of program expenses permitted. A study commissioned by the California Primary Care Assn. found that clinics could face up to $1.7 billion in collective penalties in the first year of the measure’s implementation.

More reading

What to know about Prop. 44 (L.A. Times)

An analysis of Prop. 44 (California Legislative Analyst’s Office)

More on the measure, spending (CalMatters)

Union involved in Prop. 44 faces questions (L.A. Times)

Tech-heavy Nasdaq falls 2.6 percent as debate rages over whether AI is a bubble.

US tech stocks have dropped sharply amid market jitters over the sustainability of companies’ enormous capital investments in AI.

The Nasdaq Composite, which is dominated by tech firms linked to the AI boom, fell 2.6 percent on Thursday, its steepest fall since the index tumbled 4.2 percent on June 5.

The broader S&P 500 slid 1.21 percent, the benchmark’s biggest drop since a 1.52 percent decline on July 29.

Apart from Apple, each of the “Magnificent 7”, which make up more than one-third of the overall market, saw substantial losses.

Meta dropped nearly 7 percent after it raised its projected capital spending for this year to $135bn to $145bn in its latest earnings report, even as the Facebook parent company’s net profit fell short of expectations.

Amazon fell 4.6 percent, while Nvidia dropped 4.4 percent.

Tesla and Alphabet both fell 3.1 percent, while Microsoft declined 2.2 percent.

Apple rose 1.2 percent.

The sell-off extended to other major tech players, including Intel and Advanced Micro Devices, both of which fell about 8 percent, and Broadcom, which slid 4.3 percent.

Rising oil prices since February, due to the fallout of the US-Israel war on Iran, added to the downbeat mood.

Brent crude futures rose 4 percent on Thursday and continued to climb on Friday morning, taking the international benchmark above $114.20 a barrel, its highest since May.

Stocks slip in Asian trading

Major stock markets in Asia opened lower on Friday, following the losses on Wall Street.

Japan’s benchmark Nikkei 225 fell more than 2 percent in morning trading before recovering some ground, while South Korea’s KOSPI dropped as much as 3.5 percent.

The Hang Seng Index in Hong Kong fell about 0.5 percent.

Jay Goldberg, a senior analyst at Seaport Research Partners in San Francisco, said the swings in the market appeared to be driven more by sentiment than underlying fundamentals.

“In short, nothing has changed. Investors have just decided to be afraid this week. Everyone I speak to points to a different cause for the downfall … It’s just a giant wall of worry,” Goldberg told Al Jazeera.

“There are legitimate concerns about the AI trade, but this level of shift in the markets is driven much more by investor sentiment than any tangible reason.”

US tech companies’ huge investments in AI have stoked intense debate about whether a market bubble is forming similar to the one that preceded the 2000 dot-com crash.

While some Wall Street analysts view current levels of investment in datacentres and graphics processing units as unsustainable, others argue that AI will revolutionise society to a degree that justifies the eye-watering sums involved.

Global AI investment is forecast to reach $2.7 trillion in 2026 and $3.6 trillion in 2027, according to technology insights company Gartner.

Chancellor John Healey is facing a funding gap of up to £35bn and must set out “credible” spending plans in his first Budget on 28 October, an influential think tank has warned.

The Institute for Fiscal Studies (IFS) said that if the government wants to increase defence spending to 3% of national income by 2030 and lift health spending without squeezing other departments, it will need a “top-up” of billions of pounds.

Higher inflation, caused by the Iran war, could eat into what the government hoped to spend on public services, meaning Healey will have to choose between spending cuts, tax rises, or a mixture of both, the IFS warned.

The Treasury declined to comment on “rumour and speculation”.

The IFS urged the government to ensure its spending plans are credible, as opposed to proposing unrealistic future cuts to make the Budget add up.

The government is under growing pressure to show financial markets that it has a tight grip on finances as the cost of borrowing rises.

The IFS cautioned Healey about making any spending announcements in the 28 October Budget speech he has no intention of honouring.

“A ‘steady-as-she-goes’ Budget is not an option available to the chancellor,” said IFS director Helen Miller.

“Choosing to stay the course with the inherited tax and spending plans would mean allowing inflation to blow departments’ spending plans off course.

“Simply pencilling in implicit cuts that he has no intention of delivering would make the Budget a work of fiction,” she added.

Speaking ahead of the annual International Monetary Fund meeting this week, Healey said: “The consequences of conflict in the Middle East and Europe are hitting countries worldwide, leading to higher prices at the pumps and more expensive mortgages at home.

“But Britain and our allies can face up to these challenges together.”

He said his Budget “will build on this approach with fiscal discipline helping to deliver economic resilience” and give people “breathing space”.

Miller told the BBC’s Today programme that Healey has inherited spending plans for government departments where spending growth would slow in the coming years.

“[It] already looked likely that he would have to make spending cuts just to live within those,” she said. “Now, along comes the Middle East war, inflation goes up and those spending plans look very tight indeed.”

Added to that, the chancellor has said he wants to get defence spending up to 3% of national income. Under Keir Starmer’s leadership, Healey resigned as defence secretary in June in a battle with the Treasury over military spending.

Miller said: “You put all that together, if he wanted to do all of that within current spending plans he’s looking at having to cut some other services by something like £35bn.”

The chancellor does not have to address spending totals in this Budget, and may choose to leave such decisions until future events – for example, next year’s Spring Statement or Spending Review – by which time the outlook for the economy could look very different.

But the IFS warned not addressing it would cast doubt on the credibility of the government’s plans.

Previous chancellors have relied on a similar strategy of pencilling in unrealistic future spending plans to ensure that they meet the fiscal rules on the day – only to change the plans further down the line.

Miller said Healey’s focus on fiscal discipline was a “good first start but what he needs to do is not just say he’s going to cut borrowing in coming years but actually deliver on those plans.”