States Want $176 Billion Slice of Stimulus

In response to the last economic downturn, Congress in May 2003 temporarily increased its Medicaid grants by $20 billion. A survey by the Kaiser commission found that the money "helped states to both balance their budgets and maintain Medicaid eligibility."

But a report by the Government Accountability Office concluded that the increase came too late after the 2001 recession to serve as an economic stimulus.

Steven Malanga, a senior fellow at the market-oriented Manhattan Institute, said it is unwise to bolster a program that has already stretched beyond its intended target of the very poor.

"Why don't states plan for this when the economy is good?" he said. "Why do they expand their subsidized health programs?"

Obama has taken a different approach, arguing throughout the campaign that expanding enrollment in government-subsidized health programs such as Medicaid and Medicare is one step toward ensuring that every American has health insurance.

In its most recent stimulus legislation, the Senate requested an additional $40 billion over two years -- an 8 percent increase -- in Medicaid funding. The bill died, but congressional Democrats and sources close to Obama said they expect to see a similar figure in legislation that will be debated shortly after the new year.

Similarly, it appears there is growing support for a sizable federal investment in infrastructure, which Rendell and Douglas said goes beyond the traditional road and bridge repairs to include public transit, water and sewer projects and even broadband Internet. The two governors said states have $136 billion worth of "ready-to-go" projects.

One voice of dissent in the Philadelphia meeting will likely come from Gov. Mark Sanford (R-S.C.).

"We're just putting off the day of reckoning," he said in an interview. "A problem created as a consequence of too much debt probably will not be solved by issuing more debt."

Rendell countered that there are different kinds of debt.

"This is the type of debt that actually produces something -- it produces an investment in our states and our economy," he said. "It produces jobs, it produces orders for businesses."

If Congress passes an economic stimulus bill of $500 billion to $700 billion, as Sen. Charles E. Schumer (D-N.Y.) expects, then $150 billion for infrastructure is "not outlandish," Schumer said.

"If we want to avoid a steep downward spiral, we need a strong injection quickly," he said. Spending on infrastructure "has a multiplier effect; it causes other people to be employed."

By Rendell's estimate, every $1 billion in infrastructure spending generates 40,000 "good, sustaining" jobs.