States Want $176 Billion Slice of Stimulus

Governors to Ask Obama to Set Aside Federal Funds to Boost Local Economies

When President-elect Barack Obama arrives at Philadelphia's Independence Hall today to meet with the nation's governors, the main question will be not whether he will deliver fast fiscal relief to the states, but how much?

Obama and congressional Democrats have promised that soon after Inauguration Day he will sign an economic stimulus bill that could exceed $500 billion. The governors intend to request about $176 billion of that -- $136 billion for infrastructure projects and $40 billion to bolster Medicaid health programs that serve the poor and disabled.

"The slowing economy is resulting in growing unemployment, increased demand for state services and significant declines in state revenues," said Gov. Jim Douglas (R-Vt.), who is vice chairman of the National Governors Association. "It's critical this happen as soon as possible."

As the economic downturn has swept from the housing market to financial institutions to the automobile industry, Obama has begun sketching out plans to address a recession that most experts project will be deep and long lasting. At the heart of his approach is a massive infusion of federal tax dollars.

"We have a consensus, which is pretty rare, between conservative economists and liberal economists, that we need a big stimulus package that will jolt the economy back into shape," he said recently. "Across the board, people believe that this stimulus is critical."

In a sign of the importance Obama is placing on relief to the states, the meeting with 40 current and newly elected governors will be his first trip outside Chicago since Election Day, with the exception of a brief visit to the White House.

The day before their meeting with Obama, Douglas and Gov. Edward Rendell (D-Pa.) were in Washington making the case for immediate federal aid. Already, 43 of the 50 states face budget shortfalls, they said. Gov. Arnold Schwarzenegger (R-Calif.) yesterday declared a fiscal emergency, estimating a gap of between $11 billion and $28 billion.

"Without immediate action, our state is headed for a fiscal disaster," Schwarzenegger said.

Unlike the federal government, which can run a deficit, most states are required to balance their budgets. In tough financial times, Medicaid often faces a double squeeze, said Diane Rowland, executive director of the nonprofit, nonpartisan Kaiser Commission on Medicaid and the Uninsured. Just as the money is drying up, more people are in need of assistance.

"When the economy is bad, the social service net demands grow," said Rendell, who is chairman of the governors association.

On average, the federal government pays 57 percent of Medicaid costs and states cover the rest. That means that for every $1 a state trims from its Medicaid budget, more than $2 is lost in health-care services.

Conversely, pumping money into Medicaid "has a double impact," Rowland said, by providing care to the neediest citizens and keeping local medical providers in business.