The nation's newly elected governors were warned yesterday that virtually all federal aid to states and cities could be wiped out unless Congress is willing to cut politically sensitive entitlement programs.
"Federal assistance to states and localities is in very real danger of being squeezed out of existence as a simple matter of budgetary arithmetic," retiring Georgia Gov. George Busbee (D) told the National Governors' Association in Park City, Utah, at a session that included most of the 17 new members.
By the end of the decade, Busbee said, "the functions of the federal government may be limited to national defense and the mailing of benefit checks to the aged, blind, disabled and their doctors, and to veterans and retired federal employes."
Busbee's 48-page report to the governors contains an unusually stark description of the federal budget dilemma. Simply put, Busbee said the governors may have to choose between cutbacks in Social Security and Medicare and saving their own aid programs from extinction.
As Congress grapples with annual federal deficits now projected to exceed $150 billion, Busbee said, the governors "may have to support extremely controversial solutions, such as reductions in sensitive federal entitlement programs, or in defense, or measures to raise new federal revenues."
Busbee said that 80 percent of the federal budget consists of "uncontrollable" items -- Social Security, Medicare, defense, disability pay, civilian and military pensions and debt service -- that either rise automatically with inflation or have been considered politically untouchable.
Eleven percent is federal outlays to state and local governments, of which about half consists of Medicaid and welfare checks to individuals. The remainder of the budget covers all other federal spending.
The "uncontrollable" spending is expected to grow by 37 percent over the next three years, Busbee said. This will place even greater pressure on the "controllable" programs, which he said would shrink by 15 percent during the period.
If these trends continue, he said, "Everything else the federal government now does -- environmental protection, public works, international trade promotion, infrastructure, agricultural price stabilization and on and on -- will have been squeezed out of the federal budget and delegated to the states by default."
This is likely to cause serious disruptions in services, many state officials say, for states now rely on Washington for 23 percent of their budgets. The outgoing Georgia governor said Congress is "virtually certain" to make major cutbacks in these aid programs next year.
State treasuries already have been depleted by the long recession as 34 states have had to raise taxes over the last two years.