Obama: A Change in Direction: January 2009

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Lawmakers hope the new president will ride in tandem with the states.

By Stephen C. Fehr

Barack Obama takes over the presidency Jan. 20 with a promise to help state governments aching from a recession that analysts say could last into 2010.

For states, the test for Obama is twofold: How quickly can he turn around the economy? And will he strengthen the relationship between the federal government and the states that has been under stress for more than a decade?

Even before the Wall Street crisis hit in September, states already had been battered by falling home values and high energy prices that reduced tax revenue after years of steady growth. Then came the financial meltdown, which tightened credit, raised borrowing costs, slashed the value of pension funds, increased the jobless rate and slowed consumer spending.

Faced with multi-billion-dollar budget shortfalls, legislatures from California to New York will have no choice but to consider some combination of spending cuts, service reductions, tax and fee increases and borrowing to cover the gap. Nearly every state is affected to some degree; even energy-rich states such as Alaska that initially were immune are now reporting declines in revenue.

On the campaign trail, candidate Obama evoked the eloquence and passion of John F. Kennedy. As president, he will enter office more like Bill Clinton in 1993, who pledged the day after he was elected “to focus like a laser beam on this economy.”

Obama begins his administration much the way Clinton did. He is inheriting a huge federal deficit and faces an urgent need to create jobs to help pull the country out of a recession. Meanwhile, states are seeking help to reduce Medicaid costs and hoping for more money to repair aging roads, bridges and rails.

“The biggest challenge facing the next president clearly is the bad economy and the meltdown of leading financial institutions,” said Darrell West, director of
governance studies at the Brookings Institution in Washington, D.C. “That will take a lot of money to address, and require the new president to delay implementation
of some of his own initiatives.”

New Stimulus Package

Obama is calling on Congress to pass a new economic stimulus package that would include direct aid to struggling state and local governments and a job-creating, short-term plan to help states build and fix highways, roads, bridges, airports and rail systems. Without help from Washington, D.C., Obama said after the election, states might have to cut more jobs and raise taxes.

“The idea of deeper cuts is almost unimaginable,” says California Speaker Karen Bass.“We have already cut more than $12 billion, and we will do our part to raise revenue in California. But it would be helpful to get assistance from the federal government.”

In an unprecedented meeting between governors and a president-elect, Obama on Dec. 2 hosted 48 current and former governors at Congress Hall, adjacent to historic Independence Hall in Philadelphia. The governors asked Obama for an unspecified amount of money to cover rising costs in Medicaid, the federal-state program that insures 59 million low-income Americans. They also have told the president-elect the states have about $136 billion in transportation projects ready to start within 90 days.

Obama told the governors he planned to enlist them in creating a stimulus package.

“This administration does not intend to delay in getting you the help that we need,” he said. “I’m going to be interested in you helping to draft and shape that economic plan.”

During the the campaign, Obama said he would look for ways the federal government can add jobs. Even before meeting with the governors, Obama asked his economic advisers to draw up a two-year plan to create 2.5 million jobs over two years, with a focus on fixing infrastructure, green projects such as wind farms and solar technology, and modernizing schools.

Overall, Obama has said he wants to create 5 million jobs by investing billions of dollars in renewable energy while attempting to reduce the nation’s dependence on foreign oil.

Creating an energy economy in the states could provide the same sort of economic boost for Obama as the expansion of the technology industry did for Clinton, who balanced the federal budget, says William Lunch, a political science professor at Oregon State University. The potential is especially strong in states west of the Mississippi River blessed with ample wind, sun and other renewable resources.

Connecticut Representative Bob Godfrey is hopeful the new administration will take a different approach to fixing the nation’s transportation systems. Transportation Secretary Mary Peters told a national meeting of state officials in 2007 that one approach they should consider was partnerships with private companies, an approach Godfrey called unrealistic.

“We’re hoping the change in administrations will bring an awareness of the investment needed just to keep infrastructure going and expanding,” Godfrey says.

Beyond the Economy

States also are looking to the next president to help solve day-to-day problems—from out-of-control health care costs to failing schools. Obama said during his campaign that he would increase federal spending on health care and education programs that states administer. He pledged to expand federal funding to cover additional low-income children in the State Children’s Health Insurance Program.

He also criticized inadequate federal funding that failed to provide states with enough money to pay for the landmark No Child Left Behind education testing program.

“I’ll invest in early childhood education,” Obama said in a typical campaign promise that did not carry a price tag. “I’ll recruit an army of new teachers, and pay them higher salaries and give them more support. And in exchange, I’ll ask for higher standards and more accountability.”

Like Clinton, though, Obama may learn that he can’t do everything he wants.

“People have very high expectations” of Obama, says South Dakota Representative Joni Cutler. “Some of those may be unrealistic. There doesn’t appear to be a quick, dramatic fix. We didn’t get into this overnight and we won’t get out of it overnight.”

Obama promised during the election to cut taxes on middle-class families making less than $250,000 a year and on small businesses, a plan that will add to the size of the deficit, which analysts say could reach $1 trillion in 2009. By raising taxes on the wealthiest 1 percent of Americans, though, Obama says he will finance his health-care plan, which would cost $115 billion in the first year. Since the election Obama has declined to say whether he will seek to end the tax cuts on wealthy Americans immediately or simply wait for them to expire in 2011. His economic stimulus package will not include tax increases, aides say.

The new president will face other challenges in trying to improve relations between the states. The Bush administration allocated little federal money for a $4 billion anti-terrorism program that forces states to make driver’s licenses more secure. Several states have rebelled and refused to comply with the REAL ID law.

States also will press the Obama administration and Congress to come up with a meaningful national immigration policy—instead of the piecemeal approaches being tried by state and local governments—to deal with an estimated 11.9 million illegal immigrants.

Change From Bush

On several policy fronts, the new president could dictate a change in direction. Contrary to the Bush administration, Obama has said he would back California’s plan to require automakers to reduce greenhouse-gas emissions from vehicles by 30 percent by 2016; 13 states are ready to follow California’s lead. Michigan officials, worried about home-state automakers that are facing bankruptcy, have said they would ask Obama to reject or delay California’s plan.

Obama’s emphasis on controlling climate change, including limiting carbon-dioxide emissions, could throw into question states’ own cutting-edge efforts to combat global warming. Until now, states have taken the lead, with several capping smokestack emissions of greenhouse gases and 23 joining regional pacts to lower carbon-dioxide pollution.

On the SCHIP program to provide health coverage for children, a Bush administration policy that threatened to cut health coverage for working families who earned more than a strict new limit is likely to be scrapped. Under Obama, Congress also could renew a plan twice vetoed by Bush to expand the eligibility for the program by allowing more middle-class families to qualify.

States Can Help

Regardless of what happens, Obama could have an easier time than Bush working with increased Democratic majorities among state legislatures, governors and in Congress since the Nov. 4 election.

Democrats wrested control of both houses of the state legislature in the presidential battleground states of Nevada and Wisconsin and took over the House in Ohio, another swing state Obama carried. The Delaware House, in vice-presidential candidate Joe Biden’s home state, also turned Democratic. New York voters elected a Democratic state Senate for the first time in 42 years.

Overall, Democrats control both houses in 27 legislatures, while Republicans control 14, as both parties look to gain an upper hand before congressional and state legislative district boundaries are drawn after the 2010 census. Republicans scored significant wins in Oklahoma and Tennessee by winning control of the House and Senate in both states, which GOP nominee John McCain carried handily.

Obama may appreciate the problems facing these new leaders more than others who have occupied the Oval Office. The U.S. senator from Illinois served eight years in the state Senate. He would be the first former state legislator to occupy the White House since Jimmy Carter in 1976.

“Certainly there’s a feeling that having someone who served in a state legislature and knows about states and budgets will be helpful to states,” says North Carolina Speaker Joe Hackney.

The Stimulus States Need

NCSL has made several recommendations to President-elect Obama on what should be included in an economic stimulus package. The recommendations include:

Medical assistance: States need a temporary increase in funding for Medicaid to help people who lose health care coverage during the economic downturn.

Infrastructure projects: The economy needs government assistance to create jobs. The new administration should provide increased funding for broad, ready-to-go transportation, clean water and drinking water projects. Every $1 billion invested in infrastructure translates into tens of thousands of jobs.

Employment benefits: There should be a temporary extension of unemployment benefits for people who have exhausted their state benefits. States also need adequate administrative funding.

Food stamps: Struggling families trying to cope with increased food costs need a temporary increase in food stamp benefits.

Discretionary grants: These provide states with the flexibility to address immediate fiscal concerns.

Where Obama Stands

Stateline.org has compiled summaries of President-elect Barack Obama’s positions on a number of issues of importance to states.

ECONOMY AND TAXES: Obama wants a second economic stimulus package; he voted for the first one. Last summer he proposed an immediate $50 billion plan to create two million jobs by distributing $25 billion to fiscally ailing states and another $25 billion to states for repairs and renovation of highways, roads, bridges, airports and rail systems. As of press time, he had not endorsed any of the plans currently under consideration in Congress. He would raise income taxes on the wealthiest 1 percent of Americans and cut taxes for people making under $250,000 a year.

CLIMATE CHANGE: Obama embraces cutting greenhouse gases by 80 percent of 1990 levels by 2050. Companies would pay immediately for the pollution they produce. The federal government would auction off credits to allow those polluters to release CO2, with the money going toward promoting renewable energy sources and developing cleaner technology, among other programs. He wants to spend $150 billion on developing clean-energy technology.

EDUCATION: Obama supports the goals of the No Child Left Behind Act to raise standards and hold schools accountable, but does not believe teachers and students should spend most of the year preparing for a single, high-stakes test. He wants to add $8 billion a year into the law, and would spend $10 billion more on pre-K programs such as Early Head Start and teacher training and mentoring programs. Obama does not support private school vouchers.

ENERGY: Obama said in August that he would be open to allowing more off-shore drilling in exchange for other major concessions. He does not back oil drilling in the Arctic National Wildlife Refuge in Alaska.

HEALTH CARE: Obama wants to guarantee universal access to health insurance by making employers share costs. He supports mandatory health coverage for children but not for adults. As a state and U.S. senator, Obama has consistently voted for SCHIP expansions. He has also called for an expansion of eligibility for Medicaid, the insurance program for low-income people.

IMMIGRATION: Obama voted for comprehensive immigration reform, which offered legal status to illegal immigrants who learn English, pay fines and back taxes, and pass a background check. He also voted for building a border fence. As a state senator, he voted to give driver’s licenses to illegal immigrants, and supported in-state tuition for undocumented students. He also favors allowing states to issue driver’s licenses to illegal immigrants and giving grants to states to help promote citizenship.

REAL ID: Obama opposes the REAL ID program because he said it was imposed on states without federal money to pay for it.

TRANSPORTATION: Obama has supported a one-time $25 billion expenditure that would be distributed to the states through the Federal Highway Trust Fund to spend quickly on transportation projects that would jump-start the economy. He also has advocated a 10-year, $60 billion national infrastructure fund for repairing and rebuilding highways, bridges, roads, ports, airports and rail systems in every state.

Stephen C. Fehr is a staff writer for Stateline.org, a nonprofit, nonpartisan online news site (www.stateline.org) that reports on emerging trends and issues in state policy
and politics. It is a project of the Pew Center on the States.