Governors: Automatic cuts could undermine economy

Washington's protracted budget stalemate could seriously undermine the economy and stall gains made since the recession, exasperated governors said Saturday as they tried to gauge the fallout from impending federal spending cuts.

At the annual National Governors Association meeting, both Democrat and Republican chief executives expressed pessimism that both sides could find a way to avoid the massive, automatic spending cuts set to begin March 1, pointing to the impasse as another crisis between the White House and Congress that hampers their ability to construct state spending plans and spooks local businesses from hiring.

Hawaii Gov. Neil Abercrombie, a former congressman, noted that the cuts — known in Washington-speak as "the sequester" — could lead to 19,000 workers laid off at Pearl Harbor, site of the surprise attack in 1941 that launched the United States into World War II. Today, Joint Base Pearl Harbor-Hickam supports Air Force and Navy missions.

"That will undermine our capacity for readiness at Pearl Harbor. If that doesn't symbolize for the nation ... what happens when we fail to meet our responsibilities congressionally, I don't know what does," Abercrombie said.

The budget fight came as many states say they are on the cusp of an economic comeback from the financial upheaval in 2008 and 2009. States expect their general fund revenues this year to surpass the amounts collected before the Great Recession kicked in. An estimated $693 billion in revenues is expected for the 2013 budget year, nearly a 4 percent increase over the previous year.

"It's a damn shame," said Maryland Gov. Martin O'Malley, a Democrat. "We've actually had the fastest rate of jobs recovery of any state in our region. And this really threatens to hurt a lot of families in our state and kind of flat line our job growth for the next several months."

At their weekend meetings, governors were focusing on ways to boost job development and grow their state economies, measures to restrict gun violence and implement the new health care law approved during Obama's first term.

Some Republican governors have blocked the use of Medicaid to expand health insurance coverage for millions of uninsured while others have joined Democrats in a wholesale expansion as the law allows. The Medicaid expansion aims to cover about half of the 30 million uninsured people expected to eventually gain coverage under the health care overhaul.

Yet for many governors, the budget-cut fight remains front-and-center and fuels a pervasive sense of frustration with Washington.

"My feeling is I can't help what's going on in Washington," Gov. Terry Branstad, R-Iowa, said in an interview Saturday. "I can't help the fact that there's no leadership here, and it's all politics as usual and gridlock. But I can do something about the way we do things in the state of Iowa."

Indeed, right now no issue carries the same level of urgency as the budget impasse.

Congressional leaders have indicated a willingness to let the cuts take effect and stay in place for weeks, if not much longer.

The cuts would trim $85 billion in domestic and defense spending, leading to furloughs for hundreds of thousands of workers at the Transportation Department, Defense Department and elsewhere.

Defense Secretary Leon Panetta has said the cuts would harm the readiness of U.S. fighting forces.

The looming cuts were never supposed to happen. They were intended to be a draconian fallback intended to ensure a special deficit reduction committee would come up with $1 trillion or more in savings from benefit programs. It didn't.

"We should go back and remember that sequestration was originally designed by both the administration and Congress as something so odious, so repellent, that it would force both sides to a compromise. There can't be any question, this is something that nobody wants," said Colorado Gov. John Hickenlooper, a Democrat.

Obama has stepped up efforts to tell the public about the cuts' negative impact and pressure Republicans who oppose his approach of reducing deficits through a combination of targeted savings and tax increases. House Republicans have said reduced spending needs to be the focus and have rejected the president's fresh demand to include higher taxes as part of a compromise.

Governors said they are asking the Obama administration for more flexibility to deal with some of the potential cuts.

"We're just saying that as you identify federal cuts and savings, allow the states to be able to realize those savings, too," said Oklahoma Gov. Mary Fallin, a Republican and the association's vice chairwoman.