Obama and governors to talk state aid

The nation's governors on Tuesday will make their case to the president-elect for federal money to stem the economic downturn. Experts say the sooner aid is given, the better.

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By Jeanne Sahadi, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- Plagued by rising unemployment, falling tax revenue and increased demand for state services, governors from across the country will meet with President-elect Barack Obama on Tuesday to press for federal money to ease their fiscal strain.

The National Governors' Association and the National Conference of State Legislatures urged lawmakers on Monday to provide aid as soon as possible in three areas:

  • infrastructure projects to create jobs;
  • safety net programs such as Medicaid and food stamps; and
  • efforts to offset state budget cuts by increasing the federal share for federal-state programs such as special education.

All told, states are facing an estimated shortfall of $140 billion over the next two fiscal years.

Most states are required by law to maintain balanced budgets, governors and lawmakers must make up for that shortfall by raising taxes and cutting spending.

Pennsylvania Gov. Ed Rendell, chairman of the governors' group, said in a conference call Monday that the states aren't asking for Washington to cover the full $140 billion shortfall.

"We understand that we have to do things ourselves to handle that problem," Rendell said, but noted that states "need help in sharing that burden."

Rendell and the association's vice chairman, Vermont Gov. Jim Douglas, met Monday with House Speaker Nancy Pelosi, D-Calif.

Speedy and well-allocated federal aid can make states' belt-tightening less painful, and in the process, keep the recession from getting worse, economists say.

"Without federal help ... what we will have to do is just make continuing cuts and/or raise taxes, both of which will have a further deleterious effect on our states' economy. We simply need help. ... When the economy is bad, the social service net demands grow," Rendell said.

Beyond budgetary shortfalls, states will be looking for help with infrastructure projects. The governors' association estimates there is roughly $136 billion worth of so-called "ready to go" projects that could be up and running within a year and a half, Rendell said.

The best targets for short-term help are repair work on airports, bridges, highways, transit systems, ports, rails, clean water systems, sewers and broadband, Rendell said.

"It's a matter of public safety, quality of life and economic competitiveness," Rendell said.

The soonest a federal stimulus package would likely be approved is after Obama takes office in January.

In the meantime, governors will be making fiscal decisions and submitting their budget proposals to their legislatures absent any commitment of federal aid.

On Monday, California's Gov. Arnold Schwarzenegger declared a fiscal emergency because the state legislature has so far failed to pass any bills to address the state's $11.2 billion revenue shortfall and the state is in danger of, among other things, missing school and payroll payments early in 2009, according to a statement on the governor's Web site.

"Without immediate action our state is headed for a fiscal disaster," Schwarzenegger said in a statement. To top of page

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