WASHINGTON – Led by California with a $28 billion hole in its budget over the next 20 months, 41 states are now in financial trouble, and many of their leaders are looking to Congress to bail them out.
State officials are hoping to join the ranks of the financial industry and auto manufacturers who have found a sympathetic ear on Capitol Hill. And they've found some key supporters: House Speaker Nancy Pelosi of San Francisco and other top Democrats are promoting aid to states as part of a broad stimulus package that could inject more than $300 billion into the ailing economy.
The idea is getting a strong bipartisan push from governors across the country, with California Republican Gov. Arnold Schwarzenegger and New York Democratic Gov. David Paterson among the chief proponents. Both are blaming Washington for their states' mounting troubles.
Testifying at a recent hearing, Paterson told a House panel that New York is "at the epicenter of a national emergency" after federal oversight bodies "utterly failed in their duty" to protect Americans' savings and the U.S. financial system.
And speaking before a chamber of commerce group in Fresno on Wednesday, Schwarzenegger said "government is really at fault" and that Washington is obligated to "get us out of this mess."
One could argue that the federal government isn't in much better fiscal shape, with a $10.6 trillion debt that's been growing by nearly $4 billion a day for the past year. But unlike the states, Congress doesn't have to bother balancing its books.
Critics say it makes no sense to shift expenses from one unit of government to another.
"While state governments fund different functions than the federal government, there is no distinction on who pays the bill: the taxpayer," said Rep. Kevin McCarthy, R-Bakersfield. But he added: "It is no surprise that states are looking for a bailout after Congress approved a $700 billion bailout for Wall Street."
Compared with such a huge price tag, many state officials regard their request for help as minimal.
Assembly Speaker Karen Bass said states should be viewed by Congress "as deserving of help as banks and automakers and everyone else in line for funds."
And if Congress can give $700 billion to financial institutions, she asked: "Can we have $5 (billion) or $6 (billion)? ... We can't let one of the world's largest economies go over the cliff."
Pelosi has been urging passage of a stimulus package for months. In September, the House passed a $61 billion stimulus package that included aid to states to help them pay for Medicaid costs, emergency food assistance, more spending on infrastructure and an extension of unemployment benefits. But the stimulus stalled in the Senate. Since the House vote, Pelosi said the economic crisis has worsened, and "the need for more (money) has grown."
House Minority Leader John Boehner of Ohio said the $300 billion bailout would be "aimed at social and pork-barrel programs" that would hurt small-business owners and families.
"Our path to economic recovery is not more tax-and-spend government programs that spread the wealth," he said.
In a report released last week, the Center on Budget and Policy Priorities states that 41 states are facing budget shortfalls this year, next year or both. The report says states are facing "a great fiscal crisis" and their revenue projections are only weakening.
Half of the states have already cut spending, used their financial reserves or raised taxes to balance their budgets, according to the report.
Paterson, testifying before the House Ways and Means Committee, said the states are now projecting a combined shortfall of $100 billion for their fiscal year 2010 budgets. In New York alone, he said, more than 160,000 workers are expected to lose their jobs next year, pushing the state's unemployment rate to 6.5 percent.
"States need direct and immediate fiscal relief to help close their massive budget deficits," Paterson said.
Paterson said the state of New York has been "shortchanged for years when it comes to aid from Washington," noting that last year the state sent nearly $87 billion more to the federal government in taxes than it received in return.
Call Rob Hotakainen, McClatchy Washington Bureau, (202) 383-0009. Jim Sanders and Kevin Yamamura of The Bee Capitol Bureau contributed to this report.
