"You had a slowing economy, Sept. 11 and a stock market crisis ... and all of sudden, there's just no revenue," said Michigan Gov. John Engler, the Republican chairman of the National Governors Association.
The economic rainstorm, as Engler called it, already has drained some states' rainy-day funds -- leaving governors grappling for other ways to cut costs and raise money.
"We are increasingly going to find the options limited," Engler said.
The organization kicks off its four-day meeting Saturday amid an economic downturn that has left states cutting programs, furloughing workers and increasing some taxes.
Despite signs of a gradual recovery, budget woes that forced 39 states to cut spending by $15 billion during the last fiscal year are expected to continue well into the current cycle. The problems stem from a crippling combination of higher tax refunds, lower tax revenue and rising health care costs.
"The biggest topic is who's got the biggest financial problems," said Kentucky Gov. Paul Patton, a Democrat who takes over Tuesday as chairman of the association. "We had expected a normal recovery to begin very early in this calendar year. At the February meeting, we were saying, 'Well, we've weathered the storm.' Now we realize we haven't weathered the storm. This is moving from serious to crisis."
With reserves running out, governors face some daunting decisions about how to further slash costs.
"You're talking about either cuts in education or bigger cuts in health care or broader-based tax increases," said Ray Sheppach, executive director of the NGA. "The question is: Where do you go from here?"
At this conference, the answer is Washington.
The governors will consider a proposal that calls on Congress to pick up a greater share of the cost of Medicaid, the health insurance program for the poor. Senate legislation would provide an additional $4.5 billion in Medicaid money over the next 18 months and a block grant of $4.4 billion that states could use for health care or social services.
With Medicaid eating up 20 percent of state spending, governors insist the legislation is vital.
"If we could just get 18 months of increased federal assistance, that will help some," Patton said. "By that time, hopefully, our economies will be recovered. Without that, we will begin cutting back services."
Governors also will look for ways to curb the soaring costs of prescription drugs. Medicare administrator Tom Scully was to address NGA's Human Resources Committee on Monday.
Apart from federal relief, the governors are looking to the Internet to rebuild their bank accounts. The organization is calling on Congress to support creation of a uniform system for collecting sales taxes on products sold out of state through the mail and on the Internet.
"We believe there are benefits for the states as well as benefits for the consumers," Engler said of the idea, noting that the current system is inconsistent because only some companies collect taxes.
Nineteen Republican and 11 Democratic governors are scheduled to attend the meeting.
Other top issues included:
- Homeland security. Experts will discuss anti-terrorism efforts and improvements needed in the U.S. health system to counter bio terrorism.
- Energy. Energy Secretary Spencer Abraham will discuss federal plans to address the nation's rising energy needs while protecting air quality.
Copyright 2002. Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
