WASHINGTON — Their states on the brink of financial catastrophe, governors pleaded Saturday for the divided federal government to avoid doing anything that would hamper the tenuous economic recovery back home.
Their message to Washington: Prevent a government shutdown, abstain from spending cuts that will dramatically affect states and end even preliminary discussions about allowing states to declare bankruptcy.
“Anything that Congress does that will undermine our recovery is quite troublesome to us,” said Washington Gov. Christine Gregoire, head of the National Governors Association, as she opened the bipartisan group’s winter meeting. “We’re asking for cooperation.
“We don’t need a hiccup now in our recovery,” she said. “We are fragile.”
States have made $75 billion in budget cuts and raised taxes by $33 billion over the past two years to make up for budget shortfalls caused by the recession. Governors drained reserve cash funds and oversaw several rounds of severe budget cuts, so much so that Republicans and Democrats alike now are focused on how to completely remake state governments.
The overall economic situation in states is improving. “Recovering, not recovered,” as Massachusetts Gov. Deval Patrick, a Democrat, put it.
High unemployment persists. Even more dire budget situations are to come.
Over the next two-and-a-half years, states face an estimated $175 billion more in budget gaps that they have no choice but to fill. The hole is caused partly because an initial infusion of cash from President Barack Obama’s economic stimulus law, as well as extensions of that money, will dry up in June. Arkansas Gov. Mike Beebe, a Democrat, noted that unlike the federal government, states are required to balance their budgets.
Also of concern to the governors was talk about allowing states to declare bankruptcy as a way of handling their growing piles of debt. Some conservatives have floated the idea. But House Majority Leader Eric Cantor, R-Va., has spoken out against the idea, an indication it’s not going anywhere.
Governors are worried about the effect bankruptcy could have on the municipal bond market. They also said it would increase interest rates and mean higher costs to state government.
