Suffering states see federal help as best solution

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WASHINGTON --- The nation's governors are seeking tens of billions of dollars in federal spending as their states struggle to survive the economic crisis. But how exactly would federal aid help the states -- and what would this sort of spending do for the nation's economy as a whole?

Much of the government spending that states are asking for would help create thousands of jobs. That's a major reason why President-elect Obama and the next Congress are expected to push hard to include aid for states as they craft an economic recovery plan.

Governors from across the country met with Mr. Obama in Philadelphia on Tuesday and made pleas for federal help.

Here are some questions and answers about the role of federal aid for the states in stimulating the nation's ailing economy.

Q: Why are the states asking for the government's help?

A: Given the steepest economic decline in decades, states are struggling to keep their budgets balanced.

Unlike the federal government, which runs huge deficits, many states face tight budgetary constraints and need to limit spending. Many state constitutions prohibit states from running deficits.

States are in an economic vise, squeezed by rising demands for state services even as state revenues fall.

Mr. Obama warned of a looming crisis in his meeting with the governors. He noted that 41 states are likely to face budget shortfalls this year or next.

Q: How are states hurt by budget shortfalls?

A: Shortfalls force states to make tough choices between cutting spending and raising taxes.

Raising state taxes at a time when many people are struggling hurts cash-strapped families, and to trim spending, states are often forced to cut jobs and programs aimed at helping the poor.

As the recession deepens, poor people need more help from food stamp, welfare and health care programs. Those demands can cripple state budgets.

Q: What are the states asking for?

A: The National Governors Association is asking for $40 billion over two years to boost the federal government's contribution to Medicaid, which serves the poor and disabled. (The states and the federal government share the cost of Medicaid.)

The states also want $136 billion for a long list of ready-to-go road and bridge repair projects, water and sewer projects, school repairs and other infrastructure needs.

Q: Can states expect help from the Obama administration?

A: Mr. Obama has pledged to increase federal spending for states as he consults with governors and Congress in crafting an economic stimulus package. Mr. Obama considers the stimulus package his top priority as he begins his presidency. The plan could cost more than $500 billion over two years.

Q: How would the increased federal spending help stimulate the nation's sputtering economy?

A: Officials hope to create more jobs by pumping new money into roads and other projects on the state level.

They say spending on things such as roads and bridges could help sustain long-range economic growth when the economy rebounds.

More importantly, more jobs mean more people have more money to spend, giving the overall economy a boost.


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