Business - Washington, D.C.: Governors brace for more economic turmoil; States face budget holes totaling $134B over 3 years

By Liz Sidoti

AP National Political Writer

WASHINGTON (AP) -- On the recession's front lines, governors brainstormed Saturday about the road ahead for states struggling with unrelenting joblessness and cut-to-the-bone budgets even as Washington reports signs of economic growth.

"The worst probably is yet to come," warned Gov. Jim Douglas, R-Vt., chairman of the National Governors Association. He called the situation "fairly poor" in most states, adding that it "doesn't look too good."

Such uncertainty weighed heavily over the governors' weekend meeting even though health care -- and how states can address skyrocketing costs -- was their intended focus. That's recognized as one of the biggest issues affecting states' long-term solvency.

As the meeting opened, first lady Michelle Obama sought governors' help in her campaign to tackle childhood obesity, though she acknowledged, "I know that many of you are stretched thinner than ever in these times and don't actually have money to spare."

It's true.

States face budget holes totaling a staggering $134 billion over the next three years, according to the governors, explaining that tax collections keep declining as Medicaid costs soar. High unemployment persists. States cut 18,000 jobs in January alone and more job losses are anticipated. Because states are required to balance their budgets, shortfalls will be made up by raising taxes or fees or cutting services.

Neither is easy in an election year where 37 states are poised to vote for new chief executives.

While the national economy has grown in recent months, the situation is deteriorating in the states. People are feeling the fallout daily, from fewer services to higher fees. It's a trend consistent with other recessions; states usually experience their worst budget years in the two years after a recession ends.

"A year ago we were facing an economic abyss. The president pulled us back from the brink. But we have more to do," said Delaware Gov. Jack Markell, the head of the Democratic Governors Association.

There seemed to be unanimous agreement that job creation was the key to recovery in states.

Governors are drawing up plans to boost jobs and address the financial crisis that has led to repeated budget cuts and raids on rainy day funds. States have put a big dent in the $135 billion in federal stimulus money they got last year to soften the blow.

Governors are hoping for an infusion of cash, perhaps $25 billion, in the latest jobs measure that Congress is debating. The national unemployment rate fell to 9.7 percent in January, but 17 states entered 2010 with double-digit joblessness.

"We need the administration and the Congress, members of both parties, to work to make sure a robust jobs bill is passed as quickly as possible so we can start seeing the benefits," said Ohio Gov. Ted Strickland said. He joined fellow Democrats at a news conference to call for an extension of soon-expiring unemployment benefits and more access to working capital.

In the coming year, state tax collections are projected to continue to be far lower than expected because real estate values are plunging, people are losing their jobs and consumers are curtailing spending. Demand for services such as Medicaid, food stamps and unemployment benefits is all but certain to keep rising.

Published: Tue, Feb 23, 2010

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