What Obama Could Do for States

Barack Obama will take over as president at a tumultuous time for state governments, many of which have been jolted by an economic downturn that analysts say could last into 2010.

Whether Obama can strengthen the relationship between the federal government and the states will ultimately depend on how soon he can turn around the economy, according to state officials.

As the national economy goes, so goes the states’. Falling home values, job losses and the credit crunch brought on by the Wall Street meltdown in September are siphoning tax revenue from states after years of steady growth. Governors are freezing or cutting state jobs, reducing services and raising fees to balance budgets. Compounding the difficulty, many companies are laying off workers, which will pressure states to increase spending on social services such as Medicaid and unemployment benefits.

On the campaign trail, candidate Obama evoked in his call for change the eloquence and passion of John F. Kennedy. As president, he will enter office more like Bill Clinton in 1992, who pledged the day after he was elected “to focus like a laser beam on this economy.”

Obama begins his administration the same way Clinton did: inheriting from a Bush presidency a mounting federal deficit, an urgent call to create jobs to help pull the country out of a recession and a cry for help from states to reduce Medicaid costs and spend more money repairing aging roads, bridges and rails.

“The biggest challenge facing the next president clearly is the bad economy and the meltdown of leading financial institutions,” said Darrell West of the Brookings Institution. “That will take a lot of money to address and require the new president to delay implementation of some of his own initiatives.”

In his victory speech on election night (Nov. 4), Obama showed an awareness of the difficulty of the job when he said, “The road ahead will be long. Our climb will be steep. We may not get there in one year or even one term, but America , I have never been more hopeful than I am tonight that we will get there. I promise you we as a people will get there.”

Before the Wall Street financial crisis hit, Obama called for a $50 billion economic stimulus package, with $25 billion going to financially struggling state governments and $25 billion to help states build and fix highways, roads, bridges, airports and rail systems. GOP challenger John McCain offered no similar plan for states.

Obama also said before the crisis he would increase federal spending on health care, energy and education programs that states administer. He said he would expand federal funding to cover additional low income children in the State Children’s Health Insurance Program. He said he would help states create “energy economies” and would pump $150 billion over 10 years into development of clean energy technologies. He criticized the Bush administration for not providing enough money to states to pay for the landmark No Child Left Behind education testing program.

“I’ll invest in early childhood education,” Obama said in a typical political promise that did not carry a price tag. “I’ll recruit an army of new teachers, and pay them higher salaries and give them more support. And in exchange, I’ll ask for higher standards and more accountability.”

Former Wisconsin governor and Bush administration health and human services official Tommy Thompson (R), asked how Obama would differ from Bush, said Obama has “a mandate on children that he won’t back away from now.”

Like Clinton , though, Obama may learn that he can’t do everything he wants, because he can’t pay for new or expanded programs while simultaneously reducing the budget deficit, cutting taxes and slowing growth in entitlement programs, such as Medicaid. And Clinton didn’t have to deal with the greatest financial upheaval since the Depression.

Raymond Scheppach, executive director of the National Governors Association, said balancing the opposing goals of cutting taxes and increasing spending on energy and health care will be “very difficult” for Obama, and his “approach to this challenge ultimately will affect states.”

Obama won’t be inclined to pull back on his election mandate to cut taxes on middle class families making less than $250,000 a year and on small businesses, a plan that will add to the size of the deficit, which analysts say could reach $1 trillion in 2009. By raising taxes on the wealthiest 1 percent of Americans, though, Obama says he will finance his health care plan, which will cost $115 billion in the first year.

The fate of Obama’s $50 billion stimulus plan is uncertain. Some members of Congress have discussed with Obama the possibility of Congress approving a second, larger stimulus package in the $150 billion range before Obama even takes office. Earlier this spring, the first stimulus package distributed tax rebates of $600 for individuals.

Gov. David Paterson of New York , which faces a $47 billion budget shortfall over the next three years, told Congress on Oct. 29 that the deficits facing many states are similar to the troubles of the financial services industry that led to a federal bailout. States need immediate federal help, too, he said.

“We feel that targeted, sensible actions by the federal government could provide relief for us now,” said Paterson, a Democrat.

The new president, a former state legislator, will face other challenges in trying to improve relations between the states. The Bush administration allocated little federal money for a $4 billion antiterrorism program forcing states to make driver’s licenses more secure. States will also press the Obama administration and Congress to come up with a meaningful national immigration policy so state and local governments don’t have to muddle through it on their own.

“Right now, it’s very strained” between states and Washington , said Ann Kohler, executive director of the National Association of State Medicaid Directors . “States very much want to improve that relationship.”

Obama made his views clear on social issues affecting states during the campaign. He supports a woman’s right to have an abortion and has said he would select federal judges who share that belief. Marriage, Obama says, refers to the union of a man and a woman but same-sex couples should have the same legal rights as traditional married couples. He also endorses use of the death penalty for the most heinous crimes. Still, the 2008 election was mostly fought over the economy, the war in Iraq and health care so Obama was under no pressure to make extensive changes in social policy.

At least Obama could have an easier time than Bush working with increased majorities among Democratic governors and in Congress after the Nov. 4 election.

“Democratic governors are poised to play an unprecedented role in an Obama administration,” said Nathan Daschle, executive director of the Democratic Governors Association.

Among Obama’s closest advisers are Democratic governors Tim Kaine of Virginia , Kathleen Sebelius of Kansas and Deval Patrick of Massachusetts . Arizona Gov. Janet Napolitano also was an early Obama supporter and Colorado Gov. Bill Ritter has been a champion of the “energy economy” that Obama embraced.

In recent days, New Jersey Gov. Jon Corzine has been floated by pundits and unidentified campaign sources as a possible secretary of the Treasury. Corzine is a former chief executive officer of Goldman Sachs.

Even if Obama wanted to choose some of them for his Cabinet, the governors may not be immediately available. Kaine has another year remaining in his term, Sebelius and Napolitano each have two years left, and Patrick has said he wants to run for re-election in 2010. Ritter and Corzine also are midway through their first terms.

Obama traveled a lot during the fall with Ohio Gov. Ted Strickland and Pennsylvania Gov. Ed Rendell, the current chairman of the National Governors Association. Both successfully worked to defeat Obama when he lost the Ohio and Pennsylvania primaries to Hillary Clinton earlier this year, but Strickland and Rendell helped Obama in the general election. Strickland has two years left in his first term and Rendell has two years remaining in his second term.

New Mexico Gov. Bill Richardson, who also sought the Democratic presidential nomination this year, backed Obama after he bowed out of the race, upsetting former president Bill Clinton, in whose administration he served as secretary of energy. He has two years left in his second term.

Obama could also tap former Gov. Tom Vilsack of Iowa for a post such as secretary of agriculture.

West Virginia Gov. Joe Manchin III said Wednesday (Nov. 5) that he has never seen a politician reach out as much as Obama has to Democratic governors, whom Obama brought together in Chicago after he won the nomination to discuss education, health care and energy. The Illinois senator, who served eight years in the state senate, would be the first former state legislator to occupy the White House since President Jimmy Carter in 1976.

Some state officials said they hope Obama will not follow the pattern of many politicians who lose touch with their constituents once they attain higher office.

“Once he gets inside the Beltway we don’t want him to get Beltway-itis,” said state Rep. Bob Godfrey, a Democrat from Danbury , Conn. “We’ll be there to remind him where he came from.”