Governors urge cease-fire in U.S. budget fight

Govs. Dave Heineman (from left) of Nebraska, Christine Gregoire of Washington, Deval Patrick of Massachusetts and Mike Beebe of Arkansas warned Saturday that a U.S. government shutdown would adversely affect every state.
Govs. Dave Heineman (from left) of Nebraska, Christine Gregoire of Washington, Deval Patrick of Massachusetts and Mike Beebe of Arkansas warned Saturday that a U.S. government shutdown would adversely affect every state.

— U.S. governors are urging Congress to avert a budget fight that could shut down the federal government or slash spending for states, saying it would deal a setback to a nation struggling to recover from the recession.

Washington Gov. Christine Gregoire, the Democrat who heads the National Governors Association, said states don’t expect the federal government to provide additional aid to close the budget shortfalls, as it has during the past two years. Lawmakers should avoid adding to strains from deficits that in the next fiscal year may total $125 billion, she said.

“We know there’s no money coming to the states,” she said in Washington, D.C., where the National Governors Association began a three-day meeting Saturday. “Anything that Congress does that can undermine our recovery would be quite troublesome to us.”

The budget cuts pushed through by states have been a drag on the economy as governors make up for revenue lost during the past two years. State and local government spending dropped at an annual rate of 2.4 percent during the last three months of 2010, the Commerce Department reported Friday, marking the sixth quarterly drop since the last three months of 2008.

The governors said the clash between Democrats and Republicans in Congress over how to pare the record U.S. budget deficit might aggravate their problems. The federal government could be shut down this week should an agreement not be reached. Democratic Arkansas Gov. Mike Beebe said a shutdown would choke off money for health care, education and work-force development programs.

“It will definitely impact every state,” he said.

The U.S. deficit will widen this year to $1.5 trillion, the nonpartisan Congressional Budget Office said Jan. 26, partly because of the $858 billion tax cut approved the month before.

Democrats have balked at the $61 billion in spending cuts sought by the Republican-controlled House. Republicans agreed Friday to temporarily drop some demands for reductions in federal spending, proposing instead to keep most agencies at current budget levels through March 18.Democrats, who dominate the Senate, said the Republicans’ action was a step toward forging a compromise to keep the government open until a final budget is passed.

Since 2009, the federal government has cushioned the recession’s blow to states by providing aid to help close budget shortfalls and cover the increased cost of Medicaid, the health-care program for the poor whose rolls have swelled as residents are thrown out of work. About $151 billion of such help will have been provided by the end of June, when the assistance is to run out, according to the National Governors Association.

While tax collections have improved with the economy, they have yet to return to pre-financial-crisis levels or rebound enough to make up for the lost federal help. President Barack Obama hasn’t proposed new aid, and House Republicans have said they wouldn’t support it.

Over the next two years, states face budget shortfalls of $175 billion, and they can’t afford more pressure from Washington, Gregoire said.

“We don’t need any hiccups right now in our recovery,” she said.

The governors also asked Congress not to advance legislation that would let states file for bankruptcy to escape their debts, as cities and counties can. The suggestion, endorsed by potential 2012 Republican presidential candidate Newt Gingrich, has drawn fire from lawmakers in both parties. No governor has seconded Gingrich; no lawmaker has said he has filed such a bill.

Gregoire urged congressional leaders to say that any such plans are dead, saying the mere discussion elevated borrowing costs in the $2.9 trillion municipal-bond market.

Yield on 20-year general obligation bonds rose as high as 5.41 percent by Jan. 20 from 3.82 percent in mid-October, according to the Bond Buyer 20 Index, as investors fled the market over speculation that defaults could mount.

A bankruptcy proposal would “destroy the municipal bond market” by rattling investors, Connecticut Gov. Dan Malloy, a Democrat, said.

“You’re talking about a drying-up of capital for every single public-works project,” Malloy said. “It just would be the height of insanity.”

Front Section, Pages 6 on 02/27/2011

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