Plenary Session Transcripts

• Economic Development and Commerce (EDC) – partnering university resources and economic development efforts
• Human Resources (HR) – Homeland Security and Bioterrorism: Preventing, Responding, and Recovering; and welfare reform reauthorization
• Natural Resources (NR) – 2002 Farm Bill; and energy challenges for the states
• Other Governors' Sessions – federalism symposium; forum on state leadership in the global economy; and the challenge of bioterrorism
• Plenary Session Discussion Subjects - Economic competitiveness; and legislative priorities

Porter stressed that productivity—which was the key to competitiveness—wasn't just about efficiency and numbers, nor could we rely any longer on lowering the cost of business as a means of competing, due to the existence of cheaper labor elsewhere in the world. Instead, productivity required innovation, and the boosting of product value through better quality and marketing. And evidence suggested that business clustering helped to foster innovation—and productivity in turn—through the flow of ideas and the development of skills and knowledge.

Porter went on to say that measuring a region's economic performance involved looking not just at physical productivity but also at employment growth, wages, wage growth, and exports. He said that the best clusters and regional development involved the integration of business, government, universities, and other sectors of the economy.

A regional economy, according to Porter, could have three features: (1) local industries that served only the local market; (2) traded clusters, consisting of industries trading across regions; and (3) industries that were in clusters because of their dependence on local natural resources. He noted that the third type was now the rarest in the United States. In contrast, the second type was critical, and its success in turn boosted the first.

Porter also emphasized that more than one-half of the 172 economic regions identified by the U.S. Department of Commerce in fact crossed state lines, so it was important for Governors to recognize the value of interstate economic development. And he told Governors that the way to attract businesses to their states was no longer with subsidies, low wages, or low taxes, but rather through recruitment for clusters, which were becoming more important in the wake of 9/11 because of the complication of dealing with logistics over thousands of miles.

A panel of congressional leaders from both parties reported on legislative priorities for the new session of Congress. Speaking on behalf of House Republicans, Representative Rob Portman of Ohio asked for the Governors' help in securing enactment of trade promotion legislation that had passed the House but was awaiting Senate action. He emphasized that the bill would give the President greater flexibility in negotiating for the expansion of foreign markets for U.S. exports, which were responsible for one-third of the nation's economic growth. Portman also mentioned the economic stimulus package, which was intended to create more jobs by stimulating consumer spending and business investment. The stimulus bill had passed the House three times but stalled in the Senate. And he noted that Medicaid funding would rise $14 billion in the coming year because of increased need.

Speaking on behalf of House Democrats, Representative Steny Hoyer of Maryland charged that $4 trillion of the $5.6 trillion budget surplus that had been touted one year earlier had already disappeared, about half of it because of the President's tax cut. Hoyer complained that in spite of this fact, the President was seeking another $675 billion in tax cuts, while proposing cuts in vital programs such as employment and training, alongside a 14-percent increase in defense spending. Hoyer spoke supportively of states' concerns that the reduction in welfare rolls had increased the need for spending on child care, and that the federal government should contribute a significantly larger share of funding for the Individuals with Disabilities Education Act (IDEA).

Speaking on behalf of Senate Democrats, Senator John Kerry of Massachusetts said that high on the agenda for the current session of Congress were campaign finance reform, election reform, trade promotion authority, the budget, and energy policy. He said that like House members, Senators were also adamantly in favor of increasing the federal government's share of funding for IDEA. Kerry expressed concern about an $8.5 billion cut in transportation funding and the negative impact it would have on the economy. And he said that Senate Democrats opposed the President's proposal to freeze funding for 66 education programs, cut funding for 16, and eliminate 40 altogether. He noted that the Senate had sought an increase of no less than 1.5 percent (3 percent in high-unemployment states) in Medicaid reimbursements to make up for high costs that states were facing, but that the House had not adopted the plan.

During a question and answer session, Representative Portman conceded that what might be an imperfect formula—based on estimated gas tax revenues—called for a 27-percent reduction in highway funding to the states that year. But he said that the formula could be revisited later and that in the interim, he anticipated bipartisan support for special action to avoid a cut as high as 27 percent. All of the panelists agreed as well that states should not be penalized—via federal funding cuts—for having been able to accumulate reserves under the TANF (Temporary Assistance for Needy Families) block grants as the result of their success in reducing the number of people receiving assistance. Governors emphasized that the reserves were critical not only as a cushion against potential economic downturns, but also in recognition of the fact that those still receiving welfare were the hardest to remove from the rolls.

Selected Policy Positions Adopted:
(1) Supporting federal legislation providing a Delegate in the U.S. House of Representatives for the citizens of the Northern Mariana Islands; (2) supporting recognition of the critical and permanent responsibility of states to implement homeland defense and the essential components of any national strategy; (3) opposing the provision of authority to the U.S. General Accounting Office (GAO) to audit state insurance regulators, or any person maintaining information on the regulator's behalf, at the request of Congress; (4) supporting the provision of emergency federal assistance to U.S. airlines and related sectors in the aftermath of massive financial losses suffered by the industry as a result of the September 11, 2001 terrorist attacks; (5) maintaining the Governors' long-held position that federal facilities should comply with and be subject to the same environmental standards as private-sector facilities; (6) recommending that measures be taken to detect, prevent, control, and manage the consequences of terrorism against the U.S. energy infrastructure, based on the level of vulnerability and risk; (7) recommending the appointment of a commission to suggest fundamental long-term reforms to the Medicaid program; (8) supporting efforts for the federal government to develop a coordinated plan for homeland security to address the needs of the state-based public health system; (9) calling for intelligence information sharing with Governors and high ranking state officials regarding domestic terrorism and homeland security, and for clarification of the role of the National Guard in homeland security; and (10) calling for the U.S. Department of Health and Human Services to provide guidance and adequate funding to states to assist them in enforcing programs under the Health Insurance Portability and Accountability Act (designed in part to protect privacy of a patient's health information).