January 28, 2008 Letter

NGA Calls for $12 Billion in Federal Investment

WASHINGTON—The nation’s governors adopted an interim policy calling on Congress to include state countercyclical funding as part of any federal legislation to stimulate the economy. Specifically, governors urge Congress to provide $6 billion in Medicaid assistance by freezing the Federal Medicaid Assistance Percentage (FMAP) scheduled reductions and increasing all states’ FMAP, as well as $6 billion to fund a flexible block grant to stimulate state economies.

In accompanying letters to the President and Senate and House leadership signed by National Governors Association (NGA) Chair Minnesota Gov. Tim Pawlenty and Vice Chair Pennsylvania Gov. Ed Rendell, the governors note that “states already are experiencing the effects of the slowing economy.” According to an NGA survey, 18 states have reported shortfalls totaling $14 billion for Fiscal Year (FY) 2008 and 17 states project shortfalls of $31 billion for FY 2009.

“To make any fiscal stimulus program effective, it must be timely, targeted and temporary,” said NGA executive director Raymond C. Scheppach. “If the current downturn follows the path of previous recessions, 35 to 40 states will face budget cuts in 2009. Following the last recession, Congress approved $20 billion in assistance to states, equally divided between Medicaid and block grants. The current governors’ proposal follows the same division, but totals $12 billion.”

The revenue reductions and Medicaid increases that accompany all economic downturns, in combination with state balanced budget requirements are forcing states to cut spending as the economy weakens. These actions will make the current downturn both longer and more severe. The governors’ plan will neutralize these negative impacts.

The letter also states that governors appreciate efforts to use tax policy to provide additional money to consumers and businesses to stimulate the economy. “When considering tax changes, Congress and the Administration should ‘do no harm’ to states by avoiding changes that would diminish state tax revenues or force state actions that would undermine the effectiveness of federal efforts,” Scheppach added.

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Founded in 1908, the National Governors Association (NGA) is the collective voice of the nation’s governors and one of Washington, D.C.’s most respected public policy organizations. Its members are the governors of the 50 states, three territories and two commonwealths. NGA provides governors and their senior staff members with services that range from representing states on Capitol Hill and before the Administration on key federal issues to developing and implementing innovative solutions to public policy challenges through the NGA Center for Best Practices. For more information, visit www.nga.org.