Governors To Congress: Help Us Help Economy

With congressional leaders and President Bush hashing out the details of an economic stimulus package that could reach $75 billion, the nation’s governors have weighed in with some proposals of their own.

Concerned by double-digit revenue drops in some states, the governors want measures that would save them from having to raise taxes or cut programs at a time when doing either could further damage the economy.

In a letter presented to congressional leaders by Kentucky Gov. Paul Patton Thursday, the governors asked Congress to strengthen the safety-net for families impacted by the terrorist attack, increase infrastructure spending on roads, airports and rail, and free the states from costly regulatory and matching-fund requirements.

“We agree that an economic package is necessary,” said Michigan Gov. John Engler in a conference call with reporters. “What we need to do is to begin to grow and once we start that it’s going to be a lot easier to deal with this at every level.”

The governors’ proposals come at a time when many analysts say the nation’s economy, as well as the economies of many states, are in recession. Even before the terrorist attack, the economic slowdown was forcing many states to consider budget cuts and even tax increases.

Now, with signs of fiscal weakening all around, the states are facing increasing demands on their resources, from new security requirements to growing jobless claims, even as they struggle to make up for declining revenues. These pressures are squeezing the states and causing many analysts to worry that sound fiscal policy at the state level could actually be bad economic policy for the nation.

“We don’t want to offset the stimulus that the federal government gives,” said Ray Scheppach, executive director of the National Governors Association, an organization that represents the interests of the nation’s governors in Washington, DC.

“One of the real concerns is, because of this revenue really falling off the cliff, particularly in September, states could actually add to this downturn because they’re going to be forced to either raise taxes or to cut budgets to sort of close that gap. That’s one of the reasons we’d like to work with the federal government.”

Among the governors’ many proposals is a measure that would waive the matching-fund requirements of some federal programs, in particular, the highway construction program.

“States to some extent can’t spend their current federal money because they’ve got to match it at 30%,” said Scheppach.

Waiving the matching-fund requirement would free the states to embark on highway and airport projects that would create jobs in the short run and help the economy in the long run, he said.

The governors will be watching closely any tax cuts included in the stimulus package, fearing that accelerated rate reductions might adversely affect the states.

“One of the things Congress ought to do is no harm to the state revenue bases, which are already quite shaky,” said Engler.

Engler concedes that federal tax cuts of some sort are likely. To offset these, Engler would like Congress to give the states authority to create a sales tax system to collect taxes on Internet and catalog purchases. A recent report said the states will lose $13.3 billion in tax revenue this year and $45.2 billion in 2006 due to uncollected sales taxes on remote purchases.

Other than the authority to tax Internet sales, the governors are not pushing for many long-lasting changes. The relaxing of matching-funds requirements and increased infrastructure spending, as well as the delaying of some regulatory requirements and their costly compliance costs, would mostly be temporary fixes for a temporary crisis.

“What I’m looking at are programs that have a fairly short turnaround, where, if the decision is made to go forward, we can get that money into the economy quite quickly,” said Engler. “And that’s really what I think will give everybody a lift.”