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Governors urge Obama to fix fiscal cliff to avert state hit

story by Roger Runningen and William Selway
Bloomberg News

U.S. Governors urged President Barack Obama to quickly compromise with Congress to avert the so-called fiscal cliff and avoid hurting economic recoveries in their states.

Governors also pressed the president to avoid shifting costs from the federal government to states as the White House negotiates with Republican leaders in Congress over avoiding the fiscal cliff, more than $600 billion of tax increases and spending cuts set to begin in January.

“What people are concerned about is the uncertainty that the current state of the debate represents to businesses and individuals across the country,” said Gov. Jack Markell of Delaware, a Democrat, at a news conference today after meeting with Obama at the White House. “The sooner this gets resolved in a way that’s not a three-month fix – but that’s a fix for some longer period of time – the better off that we’ll be.”

States are concerned that Congress could hurt their financial recoveries by eliminating billions in state aid and triggering a recession. That poses risks in the nation’s capitals, where tax collections have rebounded near the peaks hit before the brunt of the 18-month recession that began in December 2007.

Utah Gov. Gary Herbert, a Republican, said the fiscal cliff threatens to cut $500 million from his state’s revenue.

“We’ve got to come together and get this done,” he said. “This impacts the economy. The uncertainty that’s out there lingering is creating havoc with the economies in our states.”

Obama invited members of the executive committee of the National Governors Association to the White House for talks on the budget negotiations, the effect on states and potential compromises with Congress.

Governors at the meeting also included Democrat Mike Beebe of Arkansas, Democrat Mark Dayton of Minnesota, and Republican Scott Walker of Wisconsin. Also meeting with the Governors were Treasury Secretary Timothy Geithner, senior adviser Valerie Jarrett and director of the National Economic Council Gene Sperling.

Obama put Vice President Joe Biden in charge of following up with the Governors.

The Congressional Budget Office has warned that failing to keep the tax increases and spending cuts from happening might pitch the U.S. economy into a recession. That would put pressure on state governments if sales taxes decline and residents lose their jobs.

“If we go into another recession that will have a serious effect on everybody’s revenue situation at the state level,” Dayton, Minnesota’s Governor, said in an interview.

“We all depend on this economy expanding and creating new jobs and generating revenues and lessening some of the burden on some of the social programs,” Dayton said. “We all stand to gain from that, and we all stand to lose if it doesn’t happen.”

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States would also be affected by automatic budget cuts set to begin if Congress doesn’t come up with other ways to reduce the deficit. They would lose $7.5 billion next year from dozens of programs that flow through states, including money for public schools, according to Federal Funds Information for States, a Washington-based group that follows the budget for states.

That represents a small share of the approximately $575 billion they received in federal funds in 2011, according to the National Association of State Budget Officers. Utah Gov. Herbert said it’s important that states receive more flexibility to manage state programs if the funding is cut.

“States are willing to do our part – we understand this has to be a shared sacrifice,” he told reporters. “States are willing to do more with less.”

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