WASHINGTON – The Obama administration on Thursday cut all non-humanitarian aid to Honduras over the ouster of President Manuel Zelaya, making permanent a temporary suspension of U.S. aid imposed after he was deposed in June.

The State Department made the announcement as Secretary of State Hillary Rodham Clinton was meeting with Zelaya. Spokesman Ian Kelly did not say how much assistance would be cut but officials have said previously that more than $200 million is at stake. Kelly said it affected “a broad range of assistance to the government of Honduras.”

“The secretary of state has made the decision, consistent with U.S. legislation, recognizing the need for strong measures in light of the continued resistance to the adoption of the San Jose Accord by the de facto regime and continuing failure to restore democratic, constitutional rule to Honduras,” Kelly said in a statement.

“Restoration of the terminated assistance will be predicated upon a return to democratic, constitutional governance in Honduras,” he said. In addition to the aid cut, Kelly said the department would revoke the U.S. visas of an unspecified number of Honduran officials who are backing Zelaya’s successor, Roberto Micheletti.

The State Department had previously announced the suspension of nearly $20 million in assistance to Honduras and has stopped issuing most visas at its embassy in Honduras.

RALEIGH, N.C.  – North Carolina Sen. Kay Hagan says she would like to cut the amount of international aid provided in President Barack Obama’s budget plan.

Hagan said Tuesday she would increase the amount of money dedicated in the budget to a program that helps law enforcement agencies offset the cost of jailing illegal immigrants who have committed crimes.

Hagan mostly praised the budget, including increased investments in teachers and more money for rural health care. She says the budget reins in fiscal irresponsibility, even though she said two months ago the administration’s long-term budget plans included deficits that she said were completely “unacceptable.”

Banks based in North Carolina have accepted more money from the Treasury Department’s rescue package than financial institutions in any state except New York, the nation’s financial capital.

With President Barack Obama promising to reshape the $700 billion Troubled Assets Relief Program before distributing the second half of the funding, details are emerging about how North Carolina banks are using the money received in the first round of payouts.

Since the program’s creation last fall, 20 North Carolina-based banks have accepted a total of $48.6 billion through TARP. The vast majority — $45 billion — went to Bank of America in Charlotte, the nation’s largest bank. The remaining funds went to institutions across North Carolina.

The TARP program was designed to loosen frozen credit markets that made it difficult for consumers and businesses to obtain loans.

Some North Carolina banking executives said in interviews this week they used the funds to increase lending. Others also funded acquisitions of other banks or used the extra cash to shore up capital reserves, uses that were not specifically prohibited by Treasury and in some cases were encouraged by Bush administration officials.

Republican and Democratic members of Congress and Obama have criticized the way the Bush administration handled the program. Obama has promised major changes when the $350 billion left under the program is distributed.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services committee, and other critics have complained about the low level of disclosure required of banks on how they use the money.

And he and others have accused Bush administration Treasury officials and some banks that received TARP funds of “distorting” the intent of the legislation by using the government money to buy other banks, pay out lavish bonuses and buy private jets — any use other than making loans.

Several North Carolina CEOs said that despite the push by the government to increase lending, the poor economy makes it difficult to find people and businesses who want to risk their current financial status for loans. The smaller pool of potential borrowers also was less likely to meet more rigorous lending standards that have came about over the last year.

“Not as many people are borrowing right now. They’re drawing back in and waiting for a turn in optimism before going forward with their plans,” said Scott Bauer, the chairman and chief executive of Southern Community Financial Corp. in Winston-Salem.

The bank received $42.8 million in December. Bauer said he plans to leverage it — borrow against it to bring in more capital — to make more loans. He said the bank has not ruled out using the money to “assume the assets of banks that might not make it.”

“We feel we have a fiduciary responsibility to use these funds prudently,” Bauer said.

Yadkin Valley Financial Corp. CEO Bill Long said that the bank is putting half the $36 million it received in January toward its $92 million cash and stock purchase of American Community Bancshares Inc. of Charlotte, a deal announced in September.

Long said the move made financial sense because it meant the Elkin bank would not have to borrow as much to finance the deal.

As for the rest, “Our goal with the money is to use it for growth in the communities we serve, such as loan growth,” he said. “It’s hard to determine where each dollar of that capital purchase is going since we just received the money on Jan. 23.”

Ted Ashby, CEO of Surrey Bank & Trust in Mount Airy, said his bank’s loan volume has increased over the last three months. He attributed the spike in part to new customers since the demise of some specialty lenders — those that focused on the trucking industry, for example. The bank received $2 million in January.

Ashby said tight credit markets have made it difficult to sell some loans to larger lenders. That forced the bank to keep more loans on its books, which requires larger capital reserves.

Like other North Carolina TARP beneficiaries, his bank was well capitalized before the government money arrived, Ashby said.

“In tough times like this, I’m not sure you can have too much capital,” Ashby said.

Other community banks said they had seen a spike in lending demand as interest rates have fallen, especially mortgage refinancing.

Roger Dick, president and CEO of Uwharrie Capital Corp. in Albemarle, said he expects to close over 125 single-family home loans in January, almost triple the volume in an average month. The company, which operates community banks in several counties, received $10 million in December. Dick said the bank could leverage it to make 10 times that amount in loans.

“The Catch 22 is that there’s not always good loan demand out there. People say, `loan this money right away.’ My response is to say, ‘be patient and let us do it in a prudent way.’ If not, it could cause more problems,” Dick said.

But, he said, “We’re doing what I think we’re supposed to be doing with the money, loaning it back to our community.”

Several large banks have been criticized for paying hefty bonuses to executives while staying silent about their lending activities.

When asking Congress to release the rest of the TARP funds, the Obama economic team indicated it would force greater disclosure about lending activities, limit purchases of other banks by recipients and impose stricter limits on executive compensation. The coming changes prompted some executives who received funding under the old rules to step up lending disclosure.

Bank of America said Wednesday that it would begin publishing tracking reports on its lending activities.

The Breakdown

State …………………..Sum received from Troubled Assets Relief Program

NY …………………$145.16 Billion

NC …………………… 48.55 Billion

CA …………………..27.37 Billion

MI …………………..21.18 Billion

PA ……………………. 8.77 Billion

OH ……………………..7.72 Billion

MN ……………………….7.00 Billion

GA ……………………..6.14 Billion

VA ……………………..4.04 Billion

AL ……………………..3.63 Billion

Source: Media General analysis of U.S. Treasury Department data

CNN reports that President-elect Barack Obama is asking Congress to take “dramatic action” on his economic aid package as soon as possible, warning that a failure to do so would have devastating long-term consequences for the nation.

CHICAGO – Democratic officials say President-elect Barack Obama’s stimulus plan could include aid to cash-strapped states to provide health care to the poor, along with road and bridge funding and more money for food stamps.

But in a Chicago news conference Obama offered few details of a stimulus measure he wants from Congress. But he said it would need to be powerful enough to “jolt” the economy out of an “economic crisis of historic proportions.”

Obama says his goal is to create 2.5 million jobs by, among other things, rebuilding the nation’s infrastructure and modernizing schools.

The president-elect also confirmed his selection of New York Federal Reserve President Timothy Geithner as his treasury secretary. Obama selected former Treasury Secretary Lawrence Summers to head his National Economic Council. Christina Romer will chair his Council of Economic Advisers

The price of college continues to surge, and financial aid isn’t keeping up. The Wall Street meltdown has hammered the stock market and college savings. And a college degree is ever more essential for finding a good job.

No wonder polls show voters want to know what, if anything, the two presidential candidates would do to make college more affordable.

Democrat Barack Obama and Republican John McCain have offered similar campaign pronouncements: A college education should be affordable to anyone, and the process of getting federal aid is more complicated than it should be.

But there are differences in how each would tackle the problem.

Obama’s proposals are more detailed – and more expensive. They reflect an assumption that government should do more to help students pay for college.

McCain’s proposals are more general and emphasize streamlining the aid system – improving but not necessarily expanding it. He calls for making more information available to parents and eliminating wasteful spending on pork-barrel university research projects.

Both candidates pledge to simplify financial aid.
 
A look at their proposals in some key areas:

NEW AID PROGRAMS
      The most sweeping proposal by either candidate is Obama’s call to provide most students with up to $4,000 a year in tax credits for college, in return for 100 hours of community service.

The Obama campaign says the plan would make two major improvements over the programs that it would replace – the HOPE and Lifetime Learning tax credits, which provide at most $2,000 annually.

First, it would be fully refundable, so low-income families who don’t pay enough in taxes to benefit from the full tax credit could still get $4,000. Second, aid would be awarded based on prior-year tax data, so families wouldn’t have to fill out lengthy federal aid forms and face a long wait to find out how much aid they can get.

Unlike Obama, McCain isn’t proposing new programs to help with college costs, but a senior adviser says the GOP candidate is committed to helping families, especially low-income ones, pay for college.

The adviser, Douglas Holtz-Eakin, said McCain’s approach uses taxpayer dollars more responsibly.

“We don’t have any new college proposals in terms of massive expansions of funding,” he said. “There is a budgetary reality; we have enormous spending pressures already. It would be irresponsible to go to every interest group and promise them lots of money. The other campaign does that. We don’t.”

Obama adviser Danielle Gray said all of Obama’s education proposals are paid for by cutting other federal programs, contracting and procurement reform, and eliminating spending on special projects pushed by members of Congress. The campaign puts the cost of the expanded tax credits at $10 billion.

PELL GRANTS
      For low-income students, Pell Grants, which don’t have to be repaid, are the most important federal aid program. This year 6 million students – virtually all with family incomes under $50,000 – will receive Pell Grants of up to about $4,700.

Because they target the neediest, Pell Grants are widely considered among the most effective aid programs. But over the past 20 years, demand has vastly outstripped supply. The maximum Pell Grant used to cover more than half of the cost of an average four-year public university; now it covers about one-third.

Congress has increased the maximum authorized Pell Grant, but in practice the increase is meaningless unless Congress and the next president fully fund the program – something that hasn’t happened for 30 years.

Obama pledges that Pell Grants will “keep pace” with increases in the cost of college. McCain does not commit to specific increases but would consider raising Pell awards if there is a pressing need and the budget allows, Holtz-Eakin said.

With the economy slumping, and Washington committed to a massive Wall Street bailout, the next president will be hard-pressed to maintain Pell levels, let alone increase them. A Bush administration official recently told Congress that Pell applications are running 10 percent higher than a year ago, and paying for the program may require spending increases of $6 billion – about 50 percent – next year.

STUDENT LOANS
      About $60 billion – nearly half of all public and private student-aid money – comes via the federal student loan program. The candidates have a major philosophical difference over how it should operate.

Currently, there are two parallel systems – students can borrow directly from the government, or take out loans from banks and other private lenders that are subsidized by the government.

Obama, who often mentions that he only recently finished paying off his own student loans, proposes moving the whole system to direct government loans and eliminating subsidies to banks. Last year, Congress made substantial cuts to those subsidies but did not eliminate them.

McCain, who attended the U.S. Naval Academy, which is free of charge, supports the dual system of government and private loans. Supporters of the current system say it provides competition that helps students, and say the federal government would be hard-pressed to administer the full program.

In some ways, the debate already has shifted. Experts point out that during the recent credit crisis, the government stepped in to prop up the subsidized lending program, so in practice the two programs already are merging.

Both candidates say they want to simplify the financial aid application process, and Obama wants to eliminate the Free Application for Federal Student Aid (FAFSA) form altogether. On Wednesday, Education Secretary Margaret Spellings planned to propose a new form that shortens the FAFSA from more than 100 questions to 26.

COLLEGE PRICES
      A recent survey by the College Savings Foundation found that one in four parents want the federal government to cap college costs. Neither candidate plans anything like that, or even smaller steps such as forcing schools to spend more from their endowments to hold down prices. That’s a relief to colleges, which resent interference from Washington.

The reasons why college prices are rising are complicated, and largely beyond the purview of the White House. Washington provides $86 billion annually in grants, loans and tax benefits to support students, but it’s state budgets that mostly determine public colleges’ list prices.

Critics say colleges share the blame, for failing to curtail their own spending. Families also bear some responsibility: While they gripe about rising prices, in the end, many still choose more costly schools. That could change in a prolonged economic downturn.

Michael Dannenberg, senior fellow with the New America Foundation and a former adviser to Sen. Edward Kennedy, D-Mass., says Obama’s proposals take the problem of college affordability more seriously than McCain’s. And he calls the tax credit a significant innovation.

“McCain’s message when it comes to increased tuition is, ‘You’re on your own,”‘ said Dannenberg, who has not worked for Obama’s campaign. “Obama’s message to families is, ‘We’ll give you more financial aid to help you with college costs, but your kids are going to have to help others.”‘

But Richard Vedder, an Ohio University professor affiliated with the conservative American Enterprise Institute, believes more spending on federal aid – such as what Obama proposes – will just encourage colleges to charge more. (However, as a member of Education Secretary Margaret Spellings’ higher education commission he signed on to recommendations that included more money for Pell Grants).

“I think this is just going to fuel the academics race rather than restrict it,” Vedder said. Spending more on aid means “treating the symptoms and not the disease.”