Supreme Court throws out Texas election maps (Reuters)

WASHINGTON (Reuters) – The Supreme Court handed Texas Republicans a partial victory in a partisan fight over election redistricting that has erupted after a huge increase in the state's Hispanic population.

Throwing out a set of election maps that favored Democrats and minorities, the justices on Friday sent the case back to a lower court, forcing further review of a matter with a limited timetable for resolution as 2012 elections are fast approaching.

In its first ruling on political boundary-drawing based on the 2010 U.S. Census, the high court unanimously rejected interim election maps that had been drawn up by federal judges in San Antonio.

The court said the judges' maps did not sufficiently take into account an earlier set of maps that were drawn up by the Texas state legislature that favored Republicans.

Under the high court's ruling, the Texas judges must redraw the maps for primary contests set for April 3 that will decide party candidates for congressional and state legislature elections in November.

The case is typical of redistricting fights that unfold in states across the country every 10 years after a national census. In this one, protecting the voting rights of millions of minorities and substantial political power are at stake.

Texas Attorney General Greg Abbott, a Republican, said, "The Supreme Court's swift decision will allow Texas to move forward with elections as soon as possible under maps that are lawful."

The case is being closely watched because it could help decide whether Republicans or Democrats gain as many as four seats in the U.S. House of Representatives in November. The Texas delegation now has 23 Republicans and nine Democrats.

MEXICAN-AMERICANS GROUP WEIGHS IN

A civil rights group representing Hispanics, the Mexican American Legal Defense and Educational Fund, said the ruling reaffirmed Texas' obligation to comply with the voting rights law. The group said it looked forward to further proceedings in San Antonio to secure fair interim maps.

Abbott had appealed to the Supreme Court, saying the lower court had overstepped its authority, and arguing that the judges should have deferred to maps drawn by elected lawmakers.

Those maps favor Republican candidates, but have been challenged for violating the voting rights of Hispanics and other minorities.

The Supreme Court ruled that the federal district court judges appeared to have unnecessarily ignored the state's plans in drawing certain districts and that those maps can at least be used as a starting point.

"Some aspects of the district court's plans seem to pay adequate attention to the state's policies, others do not and the propriety of still others is unclear," the court held in its narrow opinion limited to the unique facts of the Texas dispute.

Redrawing the Texas districts has been a major political and legal battle. The state's population went up by more than 20 percent, or 4.2 million people, over the past decade, with Hispanics accounting for 2.8 million of the increase.

FOUR NEW DISTRICTS FORMED

After the 2010 Census, Texas got four new congressional seats, giving it 36. The legislature's plan, signed by Texas Governor Rick Perry, who dropped out of the Republican presidential race on Thursday, created only one new heavily Hispanic district.

The Supreme Court, in the 11-page, unsigned opinion, said the judges, in coming up with new maps, must be careful not to incorporate any legal defects from the legislature's plan.

The interim maps drawn by the judges in Texas were designed to remain in place until a separate court in Washington, D.C., could decide whether the Texas state plan should be approved or rejected under the federal voting rights law.

A trial in that case is under way. That case and a different pending legal challenge in San Antonio are expected to determine the final maps to be used in Texas in future years.

The Obama administration, the state Democratic Party and minority groups have challenged parts or all of the state's redistricting plan for violating the voting rights law, and said the judicially drawn one should be used on an interim basis.

Justice Clarence Thomas issued a brief opinion agreeing with the judgment, but adding that he would have gone further. He said the legislature's plans have not been found to violate any law and should be used for the upcoming elections.

The Supreme Court cases are Perry v. Perez, No 11-713; Perry v. Davis, No. 11-714, and Perry v. Perez, No. 11-715.

(Reporting By James Vicini; Editing by Kevin Drawbaugh and Vicki Allen)

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Unpopular House Republicans aim to regroup (Reuters)

WASHINGTON (Reuters) – House Republicans, struggling to articulate a unified message after a year of fights among themselves and with Democrats, hope to use their annual retreat to craft an agenda that resonates with voters in November's elections.

That will be House Speaker John Boehner's main mission when he and his fellow Republicans gather on Thursday in Baltimore for three days of brainstorming behind closed doors.

There is also certain to be chatter about the party's frontrunner to be the presidential nominee, Mitt Romney, who is widely derided as an uninspiring moderate by members of the conservative base. And the lawmakers will hear from a rising party star: Chris Christie, the audacious New Jersey governor who is seen as a future presidential or vice presidential contender.

The retreat comes as Republicans, entering their second year in control of the House of Representatives, are hounded by disappointed voters, including many aligned with the Tea Party movement, a three-year-old grassroots conservative movement dedicated to smaller government, fiscal responsibility and individual freedom.

Recent surveys give Congress record-low approval ratings, with Democrats narrowly outpolling Republicans.

Adding to their gloom, after a year dominated by partisan brawls over spending and taxes, many conservatives feel they have little to show in their historic bid for smaller government.

In fact, polls show voters blame Republicans more than Democrats for partisan gridlock that pushed the U.S. government to the brink of shutdowns and unprecedented default amid a stubbornly high U.S. jobless rate now at 8.5 percent.

"Voters are frustrated and angry," said Representative David Dreier, a senior House Republican. "Their feelings are driven by the hard economic times" and the inability of the Republican House and Democratic Senate to agree on legislation to create jobs.

Representative Tim Huelskamp, a Tea Party activist, figures Congress's nationwide approval ratings of about 11 percent are much lower in his Kansas district.

"They're probably closer to 1 percent," said Huelskamp, who hosted seven town hall meetings with constituents during the recent holiday break.

While some House Republican boast of unprecedented efforts to downsize the U.S. government, Huelskamp and others say 2011 was a failure.

The first-term lawmaker sees little in the way of lasting, meaningful deficit reduction. He also complains that Republican leadership abandoned a 2010 campaign vow of transparency in favor of back-room deals with Democrats.

PAYROLL TAX CUT

One day before departing for the retreat, House Republicans huddled on Wednesday in the Capitol basement to assess last year's missteps, especially the December payroll tax cut debacle. The idea was to get gripes about 2011 behind them so that the retreat can focus on 2012.

"We were picking the right fight," Boehner said of his handling of the payroll tax cut last month. "But I would argue we probably picked it at the wrong time."

Boehner, the top U.S. Republican, acquiesced in December to internal and external pressures and agreed to Obama's demand for a two-month tax cut extension just before it was to expire.

Many Republicans are skeptical of the economic benefit of the payroll tax cut, part of Obama's jobs creation efforts, but opposition to the publicly popular measure was seen as a political liability.

Boehner's performance has drawn fire from critics who question his toughness. But others say the speaker is doing the best he can given the Tea Party movement's influence and Democrats' control of the Senate and presidency.

"There is a recognition by all that John has a very difficult job - and that there isn't anyone out there who can do it better," said Dreier, a Boehner ally.

In coming weeks, Republicans are expected to vote to renew the payroll tax cut beyond its February 29 expiration so they can move to other matters. They also hope to reform an antiquated budget process and hone their message on the need to streamline a clunky U.S. tax code - two moves they see as essential for restoring the nation's economic health.

The annual retreat comes before November elections that political pundits think will see Democrats gain at least a few seats in the 435-member House, but not the 25 needed to take control.

Yet control of the House could ultimately turn on the presidential race with Obama or his Republican foe providing their parties a needed lift.

Ron Bonjean, a former senior Republican leadership aide in the House and Senate, said he expects his party to coalesce around Romney as nominee.

"Republicans have a choice. Support a Republican or give up ground to President Obama. Most Republicans will decide to support a Republican," Bonjean said.

In Baltimore, House Republicans will focus on ways to boost their popularity, several aides and members told Reuters.

After years of Democrats branding them as "the party of no," Republicans will try to turn the tables and accuse Obama of blocking progress.

"We hoped the Democrats controlling the Senate and White House were willing to work with us in the interest of country," wrote Representative Jim Jordan in a letter published Tuesday on a congressional website.

"Unfortunately, the president spent the past year trying to boost his own chances for re-election by avoiding real cooperation," added Jordan, the head of the Republican Study Committee representing core House conservatives.

Last week, Republican Senator Ron Johnson, a Tea Party activist, wrote a Wall Street Journal column outlining his prescription for success in 2012 - ideas that leading House conservatives will echo, according to a Jordan spokesman.

Johnson called on Republicans to highlight, through House votes, differences between their party and Obama's Democrats, on matters from health care to domestic energy production.

(Editing by Marilyn W. Thompson and Cynthia Osterman)

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In bid to unseat Wisconsin governor, whither the challengers? (Reuters)

MILWAUKEE (Reuters) – Critics of Wisconsin's Governor Scott Walker showed on Tuesday how unpopular he is with many voters, filing more than 1 million signed petitions -- nearly twice the number needed -- to force the first-term Republican to defend himself in a special election.

On Wednesday, they faced what is likely to be a harder task: finding a Democrat who can beat the battle-tested 44-year-old.

"There is no single preeminent candidate," said Charles Franklin, a political scientist and visiting professor of law and public policy at Marquette University, said of the Democrats who might challenge Walker, who gained a national following in leading a successful push to curb Wisconsin's public unions.

Although some Democrats have hinted in recent weeks they might be interested in running against Walker in a recall, so far no one with a marquee name has committed to what is sure to be a bruising fight. No date has been set for the election.

On Wednesday, Dane County Executive Kathleen Falk announced her candidacy. But Falk, who governs the county that encompasses Madison, the state's capital, is viewed by the Wisconsin political insiders as a weak candidate given her past political losses and her liberal fiscal platform.

Due to those factors, political analysts say Falk will almost certainly have company. Other Democrats mentioned as possible candidates have included Milwaukee Mayor Tom Barrett, former congressman David Obey and State Senator Tim Cullen.

None has the cachet of Russ Feingold, the former Democratic senator popular among progressives. But an effort last summer to draft Feingold fizzled when he announced he was not interested.

"Polling shows that (Walker) has one of the highest name recognitions in the country among active governors," Franklin said. "None of the Democrats are at that same level of name recognition and familiarity."

In November, 2010, Walker defeated Barrett in the governor's election by 52 to 46 percent -- a margin of 124,000 votes out of 2.13 million cast.

A Democratic primary, needed if more than one Democratic challenger enters the fray, could divert time and money from the fight against Walker, who set off a firestorm by curtailing the collective bargaining rights of unionized public workers.

A weak Democratic candidate, and a Democratic loss in the special election, could have implications for President Obama's reelection hopes.

Indeed, a Walker triumph in a special election could turn Wisconsin, currently a battleground state, into a GOP stronghold, according to Larry Sabato, the director of the Center for Politics and a professor of politics at the University of Virginia.

"If Walker is reelected and Republicans are energized because of this, that will have an impact in the presidential race," Sabato said. "I bet if the White House had their druthers the recall would not be happening."

Organizers of the drive to recall Walker submitted what appeared to be more than enough signatures on Tuesday to trigger the special election.

Sabato said that shows the polarizing effect Walker and his agenda has had on the state.

"The hatred for Scott Walker on the Democratic side is white hot and that is what generated the one million signatures and that is what gives them a great base," said Sabato.

Walker has remained undeterred during his tumultuous first year as governor. During the passage of collective bargaining legislation, the governor pressed on even in the wake of massive protests at the Capitol each day.

When 14 Democratic state senators left the state in an ultimately unsuccessful effort to deny the Republican-controlled body a quorum and halt action on the proposals, Walker and his allies engineered passage without them.

"He was in a bunker mentality very quickly in February of his first term and maybe having survived that may make a more resilient politician now," said Barry Burden, a political scientist at the University of Wisconsin.

The Republican hold on the state legislature has also survived the political storm kicked up by the collective bargaining reforms, which Walker and his allies defended as necessary to address a gaping budget hole.

Although six Republican state senators were forced to defend their seats in special recall elections this summer, only two lost their seats. As a result, Republicans held onto a razor thin majority, 17-16, in the Senate.

In addition to Walker, four Republicans Senators, including Majority Leader Scott Fitzgerald, are facing the possibility of recall elections in a second round of special elections triggered by the union fight.

Officials at the state's Government Accountability Board said last week they may need more than 60 days to verify the signatures submitted on Tuesday. Currently, the law requires the process to be completed in 31 days.

According to a Government Accountability Board report, processing recall petitions will cost the state more than $650,000. The total cost of recall elections for the state and municipalities may be more than $9 million, according to estimates from board officials.

(Editing by James Kelleher and Peter Bohan)

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Obama, party allies raise $68 million for re-election (Reuters)

WASHINGTON (Reuters) – President Barack Obama's re-election campaign and its Democratic allies raised more than $68 million in the last three months of 2011, dwarfing Republican rivals as the White House race approaches.

In a video message sent to supporters on Thursday, Obama's 2012 campaign manager Jim Messina announced the haul, which brings the shared fundraising by Obama's campaign and the Democratic National Committee at over $200 million for 2011.

With most of that money said to be coming in small-dollar sums from thousands of Americans, the fundraising gives Obama, a Democrat, a nice cushion as he campaigns for re-election against Republicans sparring to see who will be their nominee in November's election.

Although the money given to the DNC is effectively Obama's for grabs, his own campaign -- which faces lower contribution limits -- received $42 million during the last three months of 2011.

Still, that far outstrips the amounts donated to the Republican campaigns, which do not yet receive financial backing from the Republican National Committee.

Front-runner Mitt Romney's campaign said on Wednesday it had raised $24 million in the fourth quarter. Ron Paul raised $13 million and Newt Gingrich raised $9 million.

The Obama team is shooting to top the roughly $750 million it raised when he was elected president in 2008.

Much of Obama's success in 2008 was credited to his grassroots support illustrated by small donations, which Messina said continue to flow. Similar to the previous quarterly report, 98 percent of the donations to Obama's campaign were made up of $250 or less, he said.

In the video, Messina again rejected the expectation that the campaign would raise $1 billion. That false expectation, he said, was giving donors the misimpression Obama did not need their financial support.

"Too many Obama supporters think we don't need their money, or they don't need to give now," he said in the video.

"We won in 2008 because every single supporter and volunteer viewed their role in this campaign as absolutely essential to us winning. But now we're in danger of letting that very belief slip through our fingers this time."

One major campaign donor highlighted the financial challenge Obama faces from "Super PACs," the groups that technically cannot directly communicate with campaigns but can accept unlimited donations in support of a candidate.

"The race is going to be expensive. The fact is that there are these unlimited buckets of (Republican) PAC money," he said.

"The Obama campaign is going to need money from here for the duration. And once (the Republicans) have a nominee, that's when it starts getting expensive."

Some 1.3 million Americans gave to Obama's campaign last year, including 583,000 donors in the fourth quarter alone. Of those, almost a third were first-time donors, Messina said.

The campaign beat its goal of raising $60 million in the fourth quarter, although the amount brought in was just under $70 million raised in the third quarter. Through the end of September, the campaign and the DNC had raised roughly $155 million.

Messina's email to supporters asked them to chip in $25 now; often Obama fundraising appeals start with a much lower $3 donation request.

The campaigns have until Jan 31 to release their full fourth quarter reports.

(additional reporting by Eric Johnson in Chicago and Patricia Zengerle in Washington; Editing by Philip Barbara)

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In bid to unseat Wisconsin governor, whither the challengers? (Reuters)

MILWAUKEE (Reuters) – Critics of Wisconsin's Governor Scott Walker showed on Tuesday how unpopular he is with many voters, filing more than 1 million signed petitions -- nearly twice the number needed -- to force the first-term Republican to defend himself in a special election.

On Wednesday, they faced what is likely to be a harder task: finding a Democrat who can beat the battle-tested 44-year-old.

"There is no single preeminent candidate," said Charles Franklin, a political scientist and visiting professor of law and public policy at Marquette University, said of the Democrats who might challenge Walker, who gained a national following in leading a successful push to curb Wisconsin's public unions.

Although some Democrats have hinted in recent weeks they might be interested in running against Walker in a recall, so far no one with a marquee name has committed to what is sure to be a bruising fight. No date has been set for the election.

On Wednesday, Dane County Executive Kathleen Falk announced her candidacy. But Falk, who governs the county that encompasses Madison, the state's capital, is viewed by the Wisconsin political insiders as a weak candidate given her past political losses and her liberal fiscal platform.

Due to those factors, political analysts say Falk will almost certainly have company. Other Democrats mentioned as possible candidates have included Milwaukee Mayor Tom Barrett, former congressman David Obey and State Senator Tim Cullen.

None has the cachet of Russ Feingold, the former Democratic senator popular among progressives. But an effort last summer to draft Feingold fizzled when he announced he was not interested.

"Polling shows that (Walker) has one of the highest name recognitions in the country among active governors," Franklin said. "None of the Democrats are at that same level of name recognition and familiarity."

In November, 2010, Walker defeated Barrett in the governor's election by 52 to 46 percent -- a margin of 124,000 votes out of 2.13 million cast.

A Democratic primary, needed if more than one Democratic challenger enters the fray, could divert time and money from the fight against Walker, who set off a firestorm by curtailing the collective bargaining rights of unionized public workers.

A weak Democratic candidate, and a Democratic loss in the special election, could have implications for President Obama's reelection hopes.

Indeed, a Walker triumph in a special election could turn Wisconsin, currently a battleground state, into a GOP stronghold, according to Larry Sabato, the director of the Center for Politics and a professor of politics at the University of Virginia.

"If Walker is reelected and Republicans are energized because of this, that will have an impact in the presidential race," Sabato said. "I bet if the White House had their druthers the recall would not be happening."

Organizers of the drive to recall Walker submitted what appeared to be more than enough signatures on Tuesday to trigger the special election.

Sabato said that shows the polarizing effect Walker and his agenda has had on the state.

"The hatred for Scott Walker on the Democratic side is white hot and that is what generated the one million signatures and that is what gives them a great base," said Sabato.

Walker has remained undeterred during his tumultuous first year as governor. During the passage of collective bargaining legislation, the governor pressed on even in the wake of massive protests at the Capitol each day.

When 14 Democratic state senators left the state in an ultimately unsuccessful effort to deny the Republican-controlled body a quorum and halt action on the proposals, Walker and his allies engineered passage without them.

"He was in a bunker mentality very quickly in February of his first term and maybe having survived that may make a more resilient politician now," said Barry Burden, a political scientist at the University of Wisconsin.

The Republican hold on the state legislature has also survived the political storm kicked up by the collective bargaining reforms, which Walker and his allies defended as necessary to address a gaping budget hole.

Although six Republican state senators were forced to defend their seats in special recall elections this summer, only two lost their seats. As a result, Republicans held onto a razor thin majority, 17-16, in the Senate.

In addition to Walker, four Republicans Senators, including Majority Leader Scott Fitzgerald, are facing the possibility of recall elections in a second round of special elections triggered by the union fight.

Officials at the state's Government Accountability Board said last week they may need more than 60 days to verify the signatures submitted on Tuesday. Currently, the law requires the process to be completed in 31 days.

According to a Government Accountability Board report, processing recall petitions will cost the state more than $650,000. The total cost of recall elections for the state and municipalities may be more than $9 million, according to estimates from board officials.

(Editing by James Kelleher and Peter Bohan)

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House Democrats want new housing regulator (Reuters)

WASHINGTON (Reuters) – More than two dozen House Democrats called on Wednesday for President Barack Obama to unseat the acting regulator of housing finance agencies Fannie Mae and Freddie Mac, saying he has failed to take steps that would aggressively address the nation's housing crisis.

The group of 28 Democrats, led by Representative Dennis Cardoza, are all from California, which has been hard hit by the housing market's collapse. In their letter, the lawmakers urged Obama to replace Edward DeMarco as acting director of the Federal Housing Finance Agency and to immediately nominate a new director.

"FHFA has consistently and erroneously interpreted its mandate far too narrowly and as such has failed to take adequate action to help homeowners," the letter said.

Fannie Mae and Freddie Mac, two congressionally chartered companies charged with providing liquidity to the U.S. housing market, were seized by the government in September 2008 as mortgage losses mounted.

DeMarco, a career civil servant who was named acting director of the FHFA in August 2009, has defended the steps he has taken as conservator as being well within the authority Congress has mandated.

DeMarco, who has never been selected as the FHFA'S permanent director, has argued that the roughly $169 billion in taxpayer-funded support paid out to Fannie Mae and Freddie Mac since they were seized was meant to get them back on their feet, not to provide relief to the housing market.

The Democratic call for a new leader at FHFA comes just days after Obama made a critical recess appointment of Richard Cordray as the director of the newly created Consumer Financial Protection Bureau over Republican opposition.

"We urge that you take the same action to put in place a permanent director to the FHFA," the Democrats wrote.

The lawmakers said DeMarco has limited Fannie and Freddie from helping the troubled housing market by taking too narrow a view of his mission to protect the financial health of the two firms.

"There are steps that the FHFA can take to help prevent future foreclosures while also protecting taxpayers," the letter read. "Installing a permanent director of the FHFA will allow the FHFA to move forward to make key decisions that will help keep families in their homes and improve our economy."

The Obama administration had nominated North Carolina's banks commissioner, Joseph Smith, to be the FHFA's permanent director in November 2010, but Smith withdrew his name a few months later due to staunch Republican opposition. No new nominee has since been named.

(Reporting By Margaret Chadbourn; Editing by Leslie Adler)

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Indiana House Democrats end boycott of right-to-work bill (Reuters)

INDIANAPOLIS (Reuters) – Democrats in the Indiana state House of Representatives on Monday ended a three-day boycott blocking Republican-backed right-to-work legislation that opponents view as an assault on unions.

House Democratic leader Pat Bauer said the three-day boycott by most Democrats last week gave them a chance to circulate information about the measure around Indiana.

Republicans hold a 60-40 majority in the Indiana House, which needs a quorum of two-thirds of its members to be brought to order. With 98 representatives present on Monday, the bill was assigned to a committee for discussion Tuesday.

An Indiana Senate committee on Friday advanced a right-to-work bill to the full Senate for consideration.

Under the proposed right-to-work law, employees at unionized private workplaces would not be required to pay union dues. Supporters say the move would attract jobs to Indiana. Critics call it union busting.

Last year, House Democrats fled the state to neighboring Illinois to avoid voting on a similar right-to-work bill and other legislation they viewed as anti-labor and anti-public education. The bill died, and other bills were altered.

If the right-to-work proposal is approved, Indiana would be the first state in the industrial heartland of the United States to adopt such a law. It is in force in 22 other states, mostly in the South and West.

(Reporting by Susan Guyett; Writing by David Bailey; Editing by Greg McCune)

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Walkout by Indiana Democrats stalls anti-union bill (Reuters)

INDIANAPOLIS (Reuters) – Indiana House Democrats met behind closed doors on Wednesday, delaying the start of the 2012 legislative session and blocking action on controversial anti-union legislation backed by Republicans.

House Democratic Leader Pat Bauer defended the walkout, saying his members had been forced to boycott the first day of the new session to thwart a Republican effort to quickly ram the so-called right-to-work measure through the house.

Only additional hearings on the bill, including public meetings around the state, would break the impasse, Bauer said.

A spokesman for House Speaker Brian Bosma, who tried unsuccessfully to bring the house to order on Wednesday, said Republicans eventually adjourned for the day without concluding any business but planned to reconvene on Thursday.

Without the Democrats in attendance, the House does not have the quorum it needs to conduct business.

Under the proposed aw, employees at unionized private workplaces would not be required to pay union dues. Supporters say the move would attract jobs to Indiana. Critics call it union busting.

Last year, House Democrats fled the state to neighboring Illinois to avoid voting on a similar right-to-work bill and other legislation they viewed as anti-labor and anti-public education. The bill died, and other bills were altered.

The absentees were fined and a bill that raised the amount of money that could be collected from absent legislators was enacted.

Should the Democrats return, the numbers are in Republicans' favor with a 60-40 majority in the House and a supermajority of 37-13 in the senate.

Bosma said there would be no fines involved with Wednesday's absences but criticized the Democrats for failing to do the jobs they were elected to do.

If the bill passes, Indiana would become the first right-to-work state in an area considered the country's traditional manufacturing belt.

The bill's sponsor, Republican Indiana State Representative Jerry Torr, has been introducing similar legislation since 2004. He said the bill was about "fairness and freedom" for individual employees to decide whether they want to associate with a union.

Democrats argue that such laws lead to lower wages for all. In an article circulated by Democratic lawmakers, University of Notre Dame professors Barbara Fick and Marty Wolfson argued that trying to attract businesses to a state based on low wages undermines living standards for most workers.

"Most people would agree that lowering wages and benefits for Indiana workers is not the best way to support economic development in Indiana," Fick and Wolfson wrote.

Fick, who teaches law, and Wolfson, who teaches economics, are both affiliated with the Higgins Labor Studies Program at Notre Dame.

(Editing by James B. Kelleher and Cynthia Osterman)

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While Republicans battle, Obama never far away (Reuters)

DES MOINES, Iowa (Reuters) – While Republican presidential candidates dominate headlines in Iowa with their caucus quest, President Barack Obama's Democrats have quietly built a massive organizational structure to round up voters and win the state in November's general election.

Thousands of Democratic volunteers have mobilized across Iowa to garner support for Obama, who used the state as his launching pad for a White House victory four years ago.

The president may need that organizational advantage.

Iowa is considered a battleground state that could swing to either side, and Republican candidates have been wooing voters one-on-one here for months if not years, generating media coverage and public attention for their cause.

Obama's volunteer army has worked to offset those headlines with a quiet, on-the-ground apparatus to get out the vote. They opened eight campaign offices across the state and made more than 350,000 calls to supporters, officials said.

"Come Wednesday morning, no matter who wins the Republican race, we will have the best organization," said Tyler Olson, 35, a state representative who is campaigning for Obama.

"And we'll continue to build on it while the Republican candidates go around the country and keep battling it out."

Part of building that structure involves luring Democrats on Tuesday to their Iowa caucuses, where voters typically express support for candidates and causes.

This year the Democratic candidate -- Obama -- is already chosen, but the campaign wants supporters to turn out anyway as a sign of organizational support.

"Obviously, the celebrity is on the Republican side, and people I've called today didn't even know the Democrats were even going to have a caucus," said Leni Stastny, 63, a retired insurance worker who was volunteering at a call center in Cedar Rapids.

"I've got a lot of people (on the phone) that were going. And some people hung up on me. And some people didn't want anything to do with it. And some people were really mad at Obama because of ... healthcare (reform)."

Republicans will seek to exploit that anger among Obama's supporters, organizational advantages or not.

"The president's team is boasting about its organization in Iowa but the reality is Obama's going to need it," said Kirsten Kukowski, spokeswoman for the Republican National Committee.

"Iowa today is completely different than the state that launched him to the presidency four years ago. The so-called spark is gone in Iowa for President Obama."

GETTING ATTENTION

Obama's supporters are trying to get that spark back.

At the call center in Cedar Rapids, volunteers ranging from their late teens to their late sixties use cell phones to dial up long lists of Democrats in their neighborhoods. Obama campaign signs decorate the walls and windows, and a large statue of a donkey -- the symbol of the Democratic party -- greets visitors when they walk in.

"In essence, the Obama organization never left," said Peggy Whitworth, 69, a neighborhood "team leader" for the president in Iowa. "There's been this staying connected to people who were involved the first time around."

Obama campaign spokesman Ben LaBolt said the Iowa operation was representative of a nationwide grassroots organizing push, which it hopes will create a strategic advantage for the president in November.

"It's indicative of the type of unrivaled organizations we've built across the country," he said.

But some supporters worry that the strong Republican presence in Iowa has drowned out Obama's message.

"I haven't seen anything from Obama this year, it's all been Republican," said Wind Goodfriend, an author and Obama supporter, while walking her dogs in the town of Storm Lake.

"I think in some ways (the campaign is) probably waiting to decide what strategy based on who the Republican nominee is, but I'm not sure if it's a good or bad thing that no attention has gone to Obama," she said.

Whitworth said Obama's presence or visibility would increase.

"Some people see the presence as lots of bumper stickers and lots of yard signs. Yard signs don't vote, you know?" she said, noting that the "thrifty" Obama campaign has been careful about how much money it wants to spend on such things.

"We will continue to be more and more visible. We've certainly been visible in the last several weeks," she said.

Obama will address a group of Iowa caucus-goers from a hotel in Washington on Tuesday, adding his voice to a scene that will otherwise be drowned out by intrigue over who wins the first Republican nominating contest in the country.

The president will travel to Iowa to campaign in person, too, though his campaign declined to say when his first trip this year would take place.

He has a reason to come often: among five nationwide state-by-state scenarios that Obama campaign manager Jim Messina has designed for victory in 2012, three of them include winning Iowa.

(Editing by Alistair Bell and Jackie Frank)

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Walkout by Indiana Democrats stalls right-to-work bill (Reuters)

INDIANAPOLIS (Reuters) – Indiana House Democrats met behind closed doors on Wednesday, delaying the start of the 2012 legislative session and blocking action on controversial right-to-work legislation backed by Republicans.

House Democratic Leader Pat Bauer defended the walkout, saying his members had been forced to boycott the first day of the new session to thwart a Republican effort to quickly ram the anti-union measure through the house.

Only additional hearings on the right-to-work bill, including public meetings around the state, would break the impasse, Bauer said.

A spokesman for House Speaker Brian Bosma, who tried unsuccessfully to bring the house to order on Wednesday, said Republicans eventually adjourned for the day without concluding any business but planned to reconvene on Thursday.

Without the Democrats in attendance, the House does not have the quorum it needs to conduct business.

Under the proposed right-to-work law, employees at unionized private workplaces would not be required to pay union dues. Supporters say the move would attract jobs to Indiana. Critics call it union busting.

Last year, House Democrats fled the state to neighboring Illinois to avoid voting on a similar right-to-work bill and other legislation they viewed as anti-labor and anti-public education. The bill died, and other bills were altered.

The absentees were fined and a bill that raised the amount of money that could be collected from absent legislators was enacted.

Should the Democrats return, the numbers are in Republican's favor with a 60-40 majority in the House and a supermajority of 37-13 in the senate.

Bosma said there would be no fines involved with Wednesday's absences but criticized the Democrats for failing to do the jobs they were elected to do.

If the bill passes, Indiana would become the first right-to-work state in an area considered the country's traditional manufacturing belt.

The bill's sponsor, Republican Indiana State Representative Jerry Torr, has been introducing similar legislation since 2004. He said the bill was about "fairness and freedom" for individual employees to decide whether they want to associate with a union.

Democrats argue that such laws lead to lower wages for all. In an article circulated by Democratic lawmakers, University of Notre Dame professors Barbara Fick and Marty Wolfson argued that trying to attract businesses to a state based on low wages undermines living standards for most workers.

"Most people would agree that lowering wages and benefits for Indiana workers is not the best way to support economic development in Indiana," Fick and Wolfson wrote.

Fick, who teaches law, and Wolfson, who teaches economics, are both affiliated with the Higgins Labor Studies Program at Notre Dame.

(Editing by James B. Kelleher and Cynthia Johnston)

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Senate Democrats to offer new tax cut plan (Reuters)

WASHINGTON (Reuters) – Senate Democrats plan to offer a new proposal on Monday to extend a popular payroll tax cut amid signals that Republican leaders would accept a compromise that covers the cost to the federal Treasury.

Senate Budget Committee Chairman Kent Conrad, a Democrat, said that the offer would be a "serious attempt to move this ball forward," and avoid a December 31 expiration of the popular tax cut.

The proposal will be put forward by Senate Majority Leader Harry Reid, a Democrat, on Monday, Conrad told the "Fox News Sunday" program. He declined to give details.

Conrad called Reid's proposal "a compromise," but a spokesman for Senate Republican Leader Mitch McConnell said Republicans were not consulted.

President Barack Obama and other Democrats want to expand and continue the payroll tax break for workers and extend it to employers, arguing it would help stimulate the sluggish U.S. economy. They have offered to cover the plan's cost with a new tax on millionaires.

Republicans instead offered to extend the tax break, which reduces the Social Security tax to 4.2 percent from 6.2 percent, and cover its roughly $110 billion cost largely by continuing a federal workers' pay freeze through 2015 and gradually reducing the federal workforce by 10 percent.

The competing plans were defeated on Thursday in the Democratic-controlled Senate.

While declining to discuss details, Conrad said the cost of Reid's proposal would be fully covered and not increase the nation's record $15 trillion debt.

"It will be paid for, it will be in a way that is credible and serious," Conrad said.

SKEPTICISM

Many Republican lawmakers are skeptical that extending the tax cut beyond this year will spur job creation, and they say it will have only a temporary effect on the economy.

Some also argue an extension would take money out of the government-run Social Security retirement program, which is under increasing financial strain.

Democrats contend that revenue from the federal government's general fund - money not earmarked for specific programs or activities - will be used to make up for any loss of funds intended for the Social Security program.

Fearing a possible backlash from voters in the 2012 elections, most Republicans want to at least extend the current tax break. Republican leaders announced last week a willingness to compromise with Democrats on the issue.

Obama has pushed for extending the payroll tax cut as well jobless benefits for the long-term unemployed in campaign-style trips around the nation. The nation's unemployment rate is currently 8.6 percent.

"Probably they both (payroll tax break and unemployment insurance) will be extended," Republican Senator Tom Coburn said on "Fox News Sunday."

The White House, investment banks and some economists have warned that U.S. economic growth could suffer in 2012 if the tax cut for workers is allowed to expire.

House of Representatives Speaker John Boehner put himself at odds with some members of his fellow Republicans who are skeptical of its benefits last week when he agreed that extending the tax break would help the economy.

Republican House leaders have not offered a counterproposal, but an aide said the chamber could consider its version of the payroll tax extension as early as this week.

(Editing by Paul Simao)

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Texas asks top court to stop congressional map (Reuters)

WASHINGTON (Reuters) – Texas asked the U.S. Supreme Court on Wednesday to stop implementation of an interim Texas map for congressional districts that was crafted by a panel of federal judges and could favor minorities and Democrats in 2012 elections.

Texas Attorney General Greg Abbott made the emergency request in opposing the court-drawn congressional redistricting plan. Abbott, a Republican, asked the Supreme Court on Monday to suspend maps created by the judges for 2012 state Legislature elections.

Abbott argued the federal district court panel in San Antonio erred by refusing to defer to the Legislature's plan, and that the wholesale revisions of the maps were unjustified.

The maps, which could lead to greater representation for minorities and Democrats, were drafted earlier this month after minority groups challenged the original plans adopted by the Republican-dominated state Legislature.

Rewriting the Texas districts has become a major political and legal issue because of sharp growth over the past decade in the state's population.

Texas received four new congressional seats after the 2010 U.S. census, largely because of the rapidly growing Hispanic population. The state Legislature's plan created only one new heavily Hispanic district.

The U.S. Justice Department, which determines whether new maps in some states comply with federal civil rights laws, opposed the state's congressional redistricting plan.

Abbott said the court-drawn plan dramatically changed more than half of the 150 districts in the Texas House of Representatives, altered five of 31 state Senate districts and changed all 36 congressional districts from the state's plan.

Candidates for the 2012 elections must file by December 15, 2011. The primary elections are scheduled for March 6.

"Legal, delayed elections are preferable to legally flawed, timely elections," Abbott said in asking the Supreme Court to put on hold the primary elections if necessary.

The interim maps drawn by the judges were designed to remain in place until the legal battle over the redistricting plans has been resolved.

A separate three-judge panel in Washington is expected to hold a trial in considering whether to approve or reject the redistricting plans.

The Supreme Court cases are Perry v. Perez, No 11-A520, Perry v. Davis, No. 11-A521, and Perry v. Perez, No. 11-A536.

(Reporting by James Vicini; Editing by Peter Cooney)

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House Democrats ask for tougher Volcker rule (Reuters)

WASHINGTON (Reuters) – A group of House Democrats are asking regulators to start over with a proposed ban on proprietary trading by banks, arguing the current proposal has too many loopholes.

In a letter to Federal Reserve Chairman Ben Bernanke released on Wednesday, a group of 17 House Democrats said the draft rule unveiled last month should be scrapped and replaced with a more simple approach.

"The Federal Reserve's draft Volcker Rule is unnecessarily complex and includes several large loopholes that undermine Congress's intent to protect banking deposits from risky trading activities," the lawmakers wrote in their letter, which was spearheaded by Representatives Maurice Hinchey and Peter Welch.

The Volcker rule, named for former Fed Chairman Paul Volcker who championed the measure, aims to prevent banks that receive government backstops like deposit insurance from making risky trades with their own funds in securities, derivatives and other financial products.

It will also prohibit banks from investing in, or sponsoring, hedge funds or private equity funds.

The trading ban will have the most impact on large banks like Goldman Sachs and Morgan Stanley.

The Volcker rule was included in the 2010 Dodd-Frank financial oversight law and the draft rule released last month was written by the Fed, the Federal Deposit Insurance Corp, the Office of the Comptroller of the Currency and the Securities and Exchange Commission.

The rule is out for comment until January 13 after which a final proposal has to be drafted to fully implement the policy.

Some of the complaints the lawmakers are aiming at regulators have more to do with provisions included in the law passed by Congress.

For instance, the letter complains that the proposed rule would allow banks to engage in proprietary trading if it is done to make a market for a client or to hedge against related risks.

These exemptions to the ban, however, are permitted by the law.

Regulators have faced complaints that their interpretation of these exemptions is too broad.

The letter also cites recent comments from Volcker himself that the rule may be too complex.

At a November 9 event on the rule, however, Volcker's top aide, Tony Dowd, said the former Fed chairman is mostly supportive of the proposal, particularly the provision that lays responsibility for following the trading ban with senior management.

Dowd said Volcker feels it is more complex than needed, only because the banking industry was successful in its efforts to have exemptions added to the law.

"From Mr. Volcker's standpoint I think he is hanging his hat on the strong wording of the general prohibition on prop trading and the accountability for senior management and boards of directors to implement the policy," he said at an event hosted by Americans for Financial Reform, which supports the Volcker rule.

(Reporting by Dave Clarke; Editing by Carol Bishopric)

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Fraud case leaves California Democrats scrambling (Reuters)

LOS ANGELES (Reuters) – Stunning accusations that a top California Democratic campaign treasurer looted the war chests of her big-name clients have left candidates across the state scrambling to raise more money as election season looms.

Kinde Durkee, who controlled the funds of roughly 400 candidates and groups, ranging from Senator Dianne Feinstein to local Democratic youth clubs, was arrested in September and charged with fraud.

While the extent of the losses isn't yet clear, the coffers of dozens of Democratic politicians have been frozen, prompting the crippled campaigns to ask the California Fair Political Practices Commission to permit further donations from contributors who have already given the maximum.

Feinstein, seeking re-election in 2012, has been forced to start from "square one" to raise campaign money, said Bill Carrick, political strategist and consultant to the Senator.

But a commission official said it wasn't that simple.

"It's quite clear that we can't just say 'the contribution limit is set aside'," California Fair Political Practices Commission chair Ann Ravel said, adding that the commission's legal team was researching what options were permissible by law.

Feinstein donated $5 million of her own money to her re-election bid after the campaign lost access to an estimated $5.2 million, Carrick said. The senator has sued Durkee for fraud and breach of contract in a lawsuit that also accused First California Bank of aiding that fraud.

Durkee, the 58-year-old daughter of a Hollywood pastor, is accused of co-mingling money in the roughly 400 accounts she controlled at the bank, making it unclear to whom any recovered money actually belongs.

The bank reported $2.5 million in Durkee-controlled accounts, according to court documents, far less than the at least $9.8 million that her clients had raised, according to the Los Angeles County Democratic Party.

"We lost at least $200,000 and the impact of that, for us, is much more immediate than it is for most candidates," Los Angeles County Democratic Party Chair Eric Bauman said.

"We've got more than 50 races on the November 11 ballot. Our ability to support our endorsed candidates in these local elections is significantly affected," Bauman said, adding that the loss represents 90 percent of the party's total funds.

'GOING TO BE TOUGH'

If a donor's campaign contributions were never received, Ravel said, there is a possibility that they could donate again. The commission hopes to decide if and how donors could contribute again by its next hearing on November 10.

That deadline, however, would be too late for local elections slated for the following day, and the sudden loss of funds will be most acutely felt in grass-roots operations.

"It's definitely going to be tough," Carrick said. "It's going to be very difficult for them to replenish that kind of money."

Not everybody is as sympathetic to the sudden fund-raising challenges facing the California Democratic campaigns.

"Most of these Democrats are very influential, powerful incumbents, and the political parties are able to contribute as much as they want to the candidates," said Allan Hoffenblum, a former Republican political consultant.

"I don't think any client of (Durkee's) will lose because of this. There's plenty of money out there," he said

Durkee, who has been called the "Bernie Madoff of campaign finance treasurers" by one former client, Representative Susan Davis of San Diego, admitted to using campaign funds for her own personal expenses, according to court documents.

The mail fraud case against her in federal court alleges that Durkee used campaign donations to make mortgage payments and pay her American Express bills.

"Durkee admitted that she had been misappropriating her clients' money for years and that forms she filed with the state were false," according to an account of an interview by Federal Bureau of Investigations agents in September, according to the federal complaint.

The bank angered clients when it handed over control of the 398 bank accounts associated with Durkee to a California state court on September 23, recusing itself from sorting out how much of the recovered money should be doled out to whom.

"In yet another attempt to escape liability for the fiasco that they helped create, First California Bank has turned most of the accounts that Durkee controlled over to the courts," the Los Angeles County Democratic Party said.

It added that smaller parties who lost funds lack the financial resources to fight in court to get their money back.

First California Bank marketing director Diane Dickerson told Reuters: "It will all come out in time, I promise." She declined further comment.

Durkee is next expected to appear in court in December. Her attorney could not be reached for comment and a phone number listed in court documents as belonging to her appeared to have been disconnected.

(Editing by Dan Whitcomb and Cynthia Johnston)

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Exclusive: Democrats seek up to $3 trillion in budget savings (Reuters)

WASHINGTON (Reuters) – Democrats are proposing $2.5 trillion to $3 trillion in measures to reduce the budget deficit, including revenue increases and significant cuts to Medicare, congressional aides told Reuters.

The plan was unveiled on Tuesday at a closed-door meeting of a special 12-member congressional panel, the so-called "super committee" that is tasked with finding at least $1.2 trillion in deficit reduction over 10 years.

It was the first formal proposal by Democrats on the committee and is aimed at galvanizing talks that are quickly running up against a November 23 deadline.

The congressional aides did not say why Democrats were proposing such a big deal, but Democratic congressional leaders have repeatedly called on the committee to go beyond its mandate to fix the country's fiscal mess.

According to congressional sources, the plan includes a roughly equal mix of spending cuts and revenue increases; between $200 billion and $300 billion in new economic stimulus spending that would be paid for with lower interest payments from reducing deficits; and around $400 billion in Medicare savings, with half coming in benefit cuts and the other half in cuts to healthcare providers.

While sources portrayed the proposal as a Democratic plan, they also noted that at least one Democrat on the super committee, Representative James Clyburn, had reservations about the move to cut Medicare spending.

One of the congressional sources said Republicans on the committee did not react favorably to the Democratic plan.

Republicans have long been opposed to more economic stimulus spending and increasing revenues in deficit-reduction efforts.

(Editing by Sandra Maler)

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Competing fiscal plans blocked in divided Senate (Reuters)

WASHINGTON (Reuters) – Senate Republicans and Democrats rejected each other's economic stimulus bills on Thursday, underscoring their inability to craft a bipartisan solution on job creation before next year's elections.

All 47 Senate Republicans, joined by two of President Barack Obama's fellow Democrats and one independent, stopped a key piece of Obama's $447 billion economic stimulus plan.

The $35 billion proposal would raise taxes on millionaires to create or protect 400,000 jobs for teachers, firefighters, police officers and other first responders. In a 50-50 vote, its backers fell short of the needed 60 votes in the 100-member chamber to clear a Republican-led procedural roadblock.

"For the second time in two weeks, every single Republican in the United States Senate has chosen to obstruct a bill that would create jobs and get our economy going again. That's unacceptable," Obama said in a statement vowing to continue pushing for passage of the plan "piece by piece."

Democrats fired back by blocking a Republican bid to repeal a 3 percent withholding tax on business set to take effect on January 1, 2013. The 57-43 vote was also short of the needed 60 to stop a procedural roadblock by Democrats. Ten Democrats crossed party lines to vote in favor of the measure.

Democrats control the Senate, 53-47.

Both sides accused the other of jockeying for position in advance of the 2012 presidential elections that seems certain to feature the economy as the top issue.

"Protecting millionaires and defeating President Obama are more important to my Republican colleagues than creating jobs and getting our economy back on track," charged Senate Democratic Leader Harry Reid.

"The American people want us to do something about the jobs crisis," said Senate Republican leader Mitch McConnell. "What Republicans have been saying is that raising taxes on business owners isn't the way to do it."

WASHINGTON GRIDLOCK

Obama's approval rating is only about 41 percent largely because of his inability to bolster the economy. But Congress is even more unpopular: its approval rating is about 12 percent after budget battles pushed the government to the brink of a shutdown and an unprecedented default.

With the U.S. jobless rate stuck above 9 percent for five straight months, a recent Wall Street Journal-NBC poll showed that voters back Obama's bill by a two-to-one margin.

Obama spent three days this week campaigning in North Carolina and Virginia, key states in his reelection bid, to promote his jobs bill and crank up pressure on Republicans.

The president's strategy is to force Republicans to accept his proposals or be painted as obstructing economic recovery.

Republicans counter that Obama's plan are laden with wasteful spending and job-killing tax hikes on millionaires.

McConnell argued that the Republican bill to repeal a pending 3 percent withholding tax on business mirrored a provision that Obama included in his own jobs bill.

Democrats disagreed, noting that Obama's proposal would have delayed implementation of the tax, not repealed it.

In issuing a veto threat shortly before the Senate vote, the White House also pointed out that the Republican measure, unlike Obama's proposal, called for $30 billion in spending cuts to cover lost tax revenue.

Obama's overall $447 billion bill seeks to create jobs with a mixture of stimulus spending and tax cuts for the middle class and small businesses. It would be financed by a 5.6 percent surtax on millionaires.

McConnell rejected Democratic charges that his party is trying to hurt the economy to damage Obama's reelection bid.

"If Republicans wanted the economy to fail, we'd all line right up behind the president's economic policies, rather than opposing them," McConnell said.

(Reporting by Thomas Ferraro; editing by Anthony Boadle)

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Merkel and euroskeptic allies beaten in Berlin (Reuters)

BERLIN (Reuters) – Germany's Social Democrats beat Angela Merkel's conservatives in a regional vote in Berlin on Sunday, handing the chancellor her sixth election defeat this year ahead of a key euro zone vote in parliament in two weeks' time.

Merkel's center-right coalition suffered a further setback when their junior coalition partners at the national level, the Free Democrats (FDP), failed to clear the five percent threshold needed to win seats -- for the fifth time this year.

The beleaguered FDP, which had attempted to attract voters in Berlin with its increasingly euro-skeptic tactics, plunged to 1.8 percent from 7.6 percent in 2006, preliminary results showed.

Their eroding support nationwide could destabilise Merkel's center-right coalition, analysts said.

Merkel, under fire for her hesitant leadership in the euro zone crisis, is halfway through a four-year term. But election setbacks for her CDU have hurt her standing before the vote on euro zone measures in parliament on September 29.

"We would be wise to show humility about this result," said a visibly stunned FDP deputy party leader, Christian Lindner. "It's a low-point but also a wake up call. We knew it was going to be a difficult year and that's been dramatically confirmed."

The SPD won 28.2 percent of the vote in Berlin, down from 30.8 percent in 2006 in Germany's largest city with 3.4 million inhabitants, according to an exit poll on ARD television.

SPD Mayor Klaus Wowereit appeared to be headed for a third five-year term, with the Greens as his most likely coalition partner.

"The best part of the result tonight is that the voters showed the FDP they won't get anywhere with populist attacks against Europe," said SPD leader Sigmar Gabriel, celebrating his center-left party's sixth win in seven regional votes this year.

"It shows the voters are smarter than the FDP campaign strategists and that you can't win an election by campaigning against Europe. The FDP tried that and failed."

EUROSCEPTIC MESSAGE FAILS

The CDU won 23.3 percent, up slightly from 21.3 percent in 2006 but well below the 40 percent the party used to win in Berlin in the 1980s and 1990s. The Greens won 17.6 percent, up from 13.1 percent in 2006, and the Left party fell to 11.7 percent from 13.4 percent.

The SPD and Greens have pledged support for boosting the euro zone bailout fund for countries like Greece in a crucial vote in parliament vote on September 29, when Merkel may face a revolt from more eurosceptic members of her coalition.

Greens leader Cem Oezdemir said the FDP had "tried to turn this election into an anti-European plebiscite" after its party leader, Economy Minister Philipp Roesler, said it should not be taboo to debate an "orderly" Greek debt default.

"Losing the election with 2 percent is a dramatic setback for the FDP and I hope they draw the right lessons," Oezdemir said. "Anti-European populism has no support in Europe and in Germany, thank goodness, and that's good news for our country."

The Pirate Party, running on a campaign for reform of copyright and better privacy in the Internet age, came out of nowhere to win a stunning 9.0 percent.

The SPD, in opposition at the national level since 2009, hopes their re-election in Berlin will help build up momentum to oust Merkel in the next federal election in 2013 -- or possibly sooner, if her government were to collapse.

"We're not the successors to the FDP," said Gabriel, when asked if the SPD would be ready to replace the FDP if the government were to fail before 2013.

The SPD has ousted or helped defeat the CDU in Hamburg and Baden-Wuerttemberg this year and remained in power elsewhere.

The CDU has lost six of seven regional votes this year, holding onto power only in the eastern state of Saxony-Anhalt. The fresh loss in Berlin will add to Merkel's woes before a Bundestag vote on September 29 to give the European Financial Stability Fund (EFSF) more powers.

Merkel did not make any comments on the Berlin election. But senior CDU lieutenants tried to put a positive spin on the result, noting that it was slightly improved from 2006.

Peter Altmaier, conservative parliamentary floor leader, said the CDU's gains had helped prevent a renewal of the SPD-Left coalition that has ruled in Berlin under Wowereit for the last 10 years.

"This is solid backing ... for Angela Merkel's policies," Altmaier said, adding that Merkel has spoken out unambiguously in favor of euro zone rescue measures.

"Merkel has made it very clear in recent weeks that the CDU stands by its pro European profile and vocation," Altmaier said. "We link stability with European consciousness and that has been honoured by the voters. Some euro skeptic posters were put up in Berlin at the last moment but they had no impact."

(Reporting by Erik Kirschbaum, Stephen Brown, Alexandra Hudson and Natalia Drozdiak)

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Senate rejects trade promotion authority for Obama (Reuters)

WASHINGTON (Reuters) – U.S. Senate Democrats banded together on Tuesday to reject a Republican amendment that would give President Barack Obama "trade promotion authority" to negotiate new market-opening agreements.

Senate Republican leader Mitch McConnell offered the measure because he said it was vital for U.S. job creation.

"Without trade promotion authority, there will be no other trade agreements. We all know that," McConnell said.

"And that's why I've been a strong advocate for granting this president the same trade promotion authority that every other president has enjoyed since 1974."

The measure failed on a vote of 55-45.

Obama has not asked for trade promotion authority, which expired in 2007 and also is known as "fast track" because it puts trade pacts on a quick path to congressional approval.

An administration official said Obama will seek the authority "at an appropriate time," but pursuing the measure now would slow down action on South Korea, Colombia and Panama trade deals expected to go to Congress in coming weeks.

Senator Ron Wyden, an Oregon Democrat who chairs the Senate Finance Committee subcommittee on trade, echoed that concern.

He said lawmakers needed more time to craft new negotiating objectives for the White House, rather than just renew the expired law through 2013 as McConnell proposed.

"There is a lot of interest on our side of the aisle in working on this issue, but I would urge colleagues to resist the McConnell amendment," Wyden said.

However, many Democrats are wary of any new trade deals whether Obama or a Republican is in the White House.

Senators have been debating whether to renew two expired trade programs in what business groups hope is a prelude to action on the South Korea, Panama and Colombia pacts.

One, the Generalized System of Preferences, waives duties on thousands of goods from developing countries. The other, Trade Adjustment Assistance, provides income and retraining assistance for workers who have lost their jobs because of foreign competition.

McConnell criticized Obama for insisting Trade Adjustment Assistance be approved before submitting the trade deals.

"Still, I and others have agreed to allow it so we can finally move ahead on these vital trade deals," he said. "And it's my expectation ... that the president will stop dragging his feet and soon submit all three of them for a quick approval."

(Reporting by Doug Palmer; editing by Christopher Wilson)

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Congress delays budget fight until Monday (Reuters)

WASHINGTON (Reuters) – The Congress set the stage for another last-minute budget showdown as lawmakers delayed action on a broad spending bill until Monday, shortly before disaster relief funds will run out completely.

This time, the brinkmanship threatens to disrupt assistance to victims of floods, wildfires and other natural disasters in one of the most extreme years for weather in U.S. history.

That money could run out as soon as Tuesday, but Republicans and Democrats appeared no closer to a solution after a week of legislative maneuvering.

A billion-dollar dispute over an electric-vehicle program favored by Democrats is preventing Congress from passing a trillion-dollar bill that would replenish disaster funds and ensure the government keeps running past October 1, the start of the new fiscal year.

"Everyone, once in a while, needs a little cooling off," Senate Democratic Leader Harry Reid said. "We'll come here Monday and more reasonable heads will prevail."

Reid spoke after the Democratic-controlled Senate, by a vote of 59 to 36, rejected a version that had passed the Republican-led House of Representatives.

Lawmakers have tried to lower the temperature on Capitol Hill after a series of acrimonious budget battles rattled markets, spooked consumers and disgusted voters.

Still, the stark partisan divide over spending that has dominated Washington this year once again threatened Congress' ability to pass even the most basic legislation.

The bill in question would give the Federal Emergency Management Agency more disaster relief money and ensure that the government can continue operating while Congress debates a full 2012 budget.

Failure to act by then would force the government to suspend everything from space exploration to river dredging. It also would disrupt a flood-insurance program, delivering a further hammer blow to the troubled housing market.

ADDING TO UNCERTAINTY

Analysts and lawmakers said a government shutdown remains unlikely at this point as Congress now routinely resolves budget disputes at the last possible minute. But the wrangling adds further uncertainty to markets that are already on edge.

"Something like this is just a reminder of a lack of policy response by government, not only here in the U.S. but across the globe, in coming up with solutions to the financial and economic problems that we face," said Gary Pollack, managing director at Deutsche Bank Private Wealth Management.

Democrats and Republicans remained at odds over a $1.5 billion cut to an electric vehicle program championed by President Barack Obama.

Republicans proposed the cut to partially offset the added disaster costs to avoid adding to the nation's fiscal woes.

Democrats point out that Congress usually exempts disaster money from normal budget rules. They say the cut would threaten thousands of manufacturing jobs at a time when the country is struggling with 9.1 percent unemployment.

The Senate is scheduled to vote on Monday on a version of the bill that would restore the car loan program. The chamber's top Republican, Mitch McConnell, predicted it would fail.

The dispute throws into question lawmakers' ability to find common ground on the more painful choices they will have to confront in the coming months as a special bipartisan committee searches for trillions of dollars in budget savings.

"Any delay that occurs because of inaction in the Senate will only imperil needed disaster relief for these thousands of families all across our country," House Speaker John Boehner, the top Republican in Congress, said at a news conference.

Boehner has so far declined to give ground to Democrats as he seeks to control a rebellion from his party's conservative Tea Party faction, which is pressing for deeper spending cuts.

Democrats have shown an increased reluctance to compromise after a year of bruising budget battles has left their liberal supporters feeling like they have already given away too much.

Budget fights in Congress earlier this year pushed the government to the brink of a shutdown in April and the edge of default in August, leading to a cut in the country's top-notch AAA credit rating.

(Additional reporting by Donna Smith, Susan Cornwell and Thomas Ferraro in Washington and Karen Brettell, Rodrigo Campos and Richard Leong in New York; editing by Ross Colvin and Eric Walsh)

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Wisconsin's historic recall elections wrap up this week (Reuters)

By James B. Kelleher James B. Kelleher – Mon Aug 15, 12:55 pm ET

CHICAGO (Reuters) – Wisconsin's series of recall elections concludes on Tuesday when voters go to the polls in two state Senate districts where Democrats are being forced to defend their seats.

No matter who wins, Republican Governor Scott Walker and his Republican allies will retain control of the legislature, where the battle over public workers' union rights was waged earlier this year with public protests, legislative maneuvering and court challenges.

Republicans have managed to keep control of the state senate -- 17 to 16 at last count -- because Democrats failed to unseat three Republican state Senators in the key round of six GOP senate recalls last week. But Democrats did pick up two state Senate seats formerly held by Walker allies.

To many Wisconsin voters, especially Republicans, the special elections have been, as 70-year-old Wade Ellingson of Fond du Lac put it, "a waste of time and money."

Nevertheless, Tuesday's two final votes, like the seven before them, will be watched closely.

Two Democrats who opposed Walker's anti-union bill and even fled the state for weeks in an unsuccessful effort to prevent a quorum and delay passage -- Jim Holperin of Conover and Robert Wirch of Pleasant Prairie -- will be defending their seats.

"As always in Wisconsin politics, one has to give the incumbent an edge," said Mordecai Lee, governmental affairs professor at the University of Wisconsin, Milwaukee.

"It is likely the two Democratic incumbents will win their recalls -- but it is not a slam dunk," he said.

Holperin seems to be in the tighter race. His rival is Kim Simac, founder of the Northwoods Patriots, a Tea Party group.

Though Simac is a political novice, the district has leaned Republican in the three years since Holperin was elected.

READING THE TEA LEAVES?

Inside Wisconsin, Tuesday's votes will again be seen as a referendum on Walker's Republican policies since his election last year. It may also give Democrats who hope to recall Walker next year a sense how such an effort might turn out.

Outside the state, pundits will be seeking more clues to what 2012 holds in the national elections.

In Wisconsin, not only have Republicans kept control of the state Senate by the slimmest of margins, the limits they wanted to impose on public workers are now state law.

Walker fought for the curbs, which severely diluted union bargaining power and also make public workers pay more for healthcare and pensions, saying they were needed to help Wisconsin close a $3.6 billion budget deficit.

Democrats cried foul, pointing out that public workers already agreed to steep benefit cuts. They called the effort as union-busting, designed to hobble organized labor -- a major source of Democratic Party financing -- ahead of 2012.

The fight thrust Wisconsin into the national spotlight, igniting massive pro-union protests and political fights that led to the recall efforts against six Republicans who backed the union curbs and three Democrats who opposed them.

On Tuesday, analysts will be watching turnout carefully, since the key issue of senate control --- and a possible legislative block on Walker's conservative agenda -- is settled.

Analysts say Democrats may be less motivated to turn out to vote. Tea Party activists, meanwhile, appear more energized by the recent fight in Washington over the debt ceiling, seen as a clear victory for conservatives in the budget-cutting concessions agreed by President Obama and Democrats.

The nine Wisconsin recalls are historic. Until this summer, there had been only 20 state-level recall elections in the 235-year history of the United States.

Reflecting the national spotlight Wisconsin drew over the winter as Walker and his allies battled state Democrats, a tidal wave The money poured into the campaigns has been something for the record books, too.

Mike Buelow, research director for the Wisconsin Democracy Campaign, estimates that candidates and outside groups spent as much as $37 million on the recalls.

That amount is "really astronomical for Wisconsin," he said -- more than double the amount spent on state legislative races last year when 116 seats -- not nine -- were up for grabs.

With the recalls acting as somewhat of a rehearsal for 2012, experts say the spending could be a harbinger of record outlays next year.

"This is the first major election of 2012," said Joseph Heim, political science professor at the University of Wisconsin, La Crosse, "and one of the things we saw here was huge amounts of money."

(Additional reporting by David Bailey and Mary Wisniewski, editing by Barbara Goldberg and Peter Bohan)

(The following story corrected the governor's name in second paragraph)

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