Dear Majority Leader Reid, Senator McConnell, Speaker Boehner, and Representative Pelosi:

As a new Congress convenes and a new year begins, the nation’s governors call on the federal government to work cooperatively with us to reduce deficits, restore fiscal discipline and promote economic growth and long-term prosperity. 

This month 29 new governors – the largest class in history – assumed office with most facing collective budget deficits of $175 billion through 2013.  This amount is on top of $230 billion in budget gaps states filled between fiscal years 2009 and 2011.  As you know, unlike the federal government, states have to balance their budgets.  This means that the $175 billion shortfall will have to be filled through spending cuts or increased fees and taxes.

Over the last two years the federal government put more than $151 billion into state coffers to help offset catastrophic declines in revenues. States also did their part cutting spending by more than 10.7 percent ($75 billion), tapping rainy day funds, shrinking the size of government and streamlining state services.  More cuts will be necessary, but with all easy cuts exhausted, the next round will require more layoffs, fewer state services and potential cuts to core programs like K-12 education and public safety.

Despite states’ difficult fiscal situation, governors are not calling for new one-time help from the federal treasury.  In fact, we encourage the federal government to follow the lead of states and make the tough decisions necessary to get its fiscal house in order; federal fiscal stability is critical to the long-term strength of states and the country.

As federal lawmakers work to reduce deficits, reform programs and restore long-term stability, governors call on the Administration and Congress to adhere to the following principles for state-federal deficit reduction:

• Federal reforms should be designed to produce savings for both the federal government and states.  The shared responsibility for implementing and running state-federal programs should also mean shared savings when reductions or reforms are made at the federal level.

• Deficit reduction should not be accomplished by merely shifting costs to states or imposing unfunded mandates.  The structural deficit facing federal lawmakers cannot be solved by the states.  Good fiscal policy must take into account the effects of federal action on state government to avoid actions that harm the ability of governors to manage state budgets.

• States should be given increased flexibility to create efficiencies and achieve results.  Decreases in funding should be accompanied by an increase in state authority to manage programs and find savings.  For example, states must be allowed to consolidate funds from similar programs to produce better results.  Federal mandates, even those that are paid for, fail to encourage state innovation or cost savings that can benefit both states and the federal government.

• Congress should not impose maintenance of effort (MOE) provisions on states as a condition of funding.  MOE’s curtail state authority to control their own budgets and fiscal systems and over time discourage investment in state-federal programs (see attached). 

Governors have a duty to be good fiscal stewards of taxpayer dollars.  The recession forced many states to take difficult short-term actions to balance budgets and to find innovative ways to make government a more efficient and productive instrument that can do more with less.  The federal government must now do the same. 

Sincerely,

Enclosure: Federal State MOE Requirements