They’ll Propose a Toast to State and Local Aid

Republican governors and mayors coming to Washington to celebrate President Bush’s inauguration also have a second, less amiable goal -- fighting the administration over expected cuts in federal aid to fiscally fragile state and local governments.

Governors are worried because federal funds account for as much as one-quarter of the budgets of many states. And the potential cuts would exacerbate problems they already face in balancing their own books.

They are especially concerned about cuts in the federal share for the state-run Medicaid health program for the poor, a program whose rising costs account for an increasing share of state budgets.

A December letter from the National Governors Assn. said the chief executives wanted to work with federal officials to reform Medicaid, but called it “unacceptable in any deficit reduction strategy to simply shift federal costs to states.”

Arkansas Gov. Mike Huckabee, a Republican and the association’s vice chairman, joined the group’s chairman, Virginia Gov. Mark R. Warner, a Democrat, in signing the letter.

Mayors are fretting about anticipated cuts in federal aid to cities, particularly in a program that has funded community projects such as graffiti removal and construction of senior centers.

As a result, some of the most intense lobbying against spending reductions are expected to come from members of the president’s own party, including governors representing “red states” that helped give Bush a second term.

The president has signaled a more determined effort to cut the federal deficit. The administration’s new budget, to be unveiled in early February, is expected to propose some significant reductions in nondefense spending.

White House budget director Josh Bolten, while declining to discuss budget specifics, acknowledged there would be unhappiness. “I’d say at this moment I’m probably the least popular person in Washington,” he said recently.

Although their budget picture has improved, a number of states are still struggling financially. And that means fiscal disputes can break out even among the best of political friends.

California’s Republican Gov. Arnold Schwarzenegger, facing a projected $8.6-billion shortfall, has proposed cuts in healthcare, transportation programs and welfare benefits. New Indiana Gov. Mitch Daniels, a Republican and Bush’s former budget director, faces a budget deficit of at least $600 million.

GOP governors in Ohio, Mississippi and a number of other states also face possible shortfalls in their budgets.

The National Conference of State Legislatures, in a letter signed by a Republican and Democratic state lawmakers, urged federal officials “to be mindful of the effects that federal budget decisions have on state budgets and to avoid exporting the federal deficit to the states.”

Because of the size of Medicaid, it is expected to be a key feature of Bush’s effort to cut the deficit in half by fiscal 2009.

The program pays for the care of most nursing home residents and provides health insurance for the poor and for one in four children, mainly in low-income working families. It covers 51 million people, and its combined federal-state costs of nearly $250 billion a year surpass federal spending on Medicare for the elderly.

In some states, Medicaid has overtaken education as the most expensive budget item.

In the past, the administration has proposed capping the federal contribution for medical costs of the poor while giving states greater flexibility on how to use the funds. Another option Bush might propose would reduce payments to hospitals for care provided to the uninsured.

At his Senate confirmation hearing Tuesday, Mike Leavitt, Bush’s nominee to be secretary of Health and Human Services, did not reveal any specifics of the administration plans for Medicaid. But Leavitt, a former governor of Utah, said he generally favored flexibility to allow states to draw up less expansive, less expensive benefits and thereby cover more people.

“Medicaid is flawed and inefficient,” Leavitt said in prepared remarks. “We can do better. We can expand access to medical insurance to more people by creating flexibility for our state partners and transforming the way we deliver it.”

But Republican and Democratic governors are worried that the next federal budget could make it more difficult for them to maintain current levels of healthcare for the poor.

Huckabee said in an interview: “We understand that the federal government needs to address the deficit, but at the same time [most] states are forced to have a balanced budget, which means if we have a significant drop in funding.... We will deal with it by drastic and in some cases very painful cuts to essential services.”

As he did last year, Bush is expected to propose no money for a program he supported when he was Texas governor -- aid to states for jailing illegal immigrants convicted of crimes.

Schwarzenegger, who plans to attend Bush’s swearing-in at the U.S. Capitol on Thursday, has already written Bush urging him to “support the states that must bear the significant burden of incarcerating criminal aliens.”

California officials say the state spends $750 million annually to jail illegal immigrants convicted of crimes.

Congress last year provided $305 million nationwide for the program.

A bipartisan group of governors has written Congress expressing support for a program that helps states fund water projects.

Bush last year proposed cutting close to $500 million from what was then a $1.3-billion program. Congress ended up slashing $340 million. The program is expected to be targeted for further cuts.

Some of the Republican mayors in Washington this week for the inauguration -- as well as a U.S. Conference of Mayors meeting -- are expected to lobby administration and congressional officials to preserve funding for a number of federal programs.

These include the 30-year-old Community Development Block Grant program, which funds graffiti-removal efforts and a raft of other local projects. The program’s $4.3-billion budget was trimmed by $200 million last fall.

California cities and counties are due to receive about $526 million under the program this year.

“We knew it was going to be tough,” Barbara J. Thompson, executive director of the National Council of State Housing Agencies, said of efforts to maintain the program’s funding. “But now it appears it’s going to be tougher than we could have imagined.”

The administration has been critical of the way the program has been carried out. Last year, it termed the program “ineffective,” saying that local governments often spend the money on an array of projects, “which reduces the ability to achieve the program’s primary objective -- revitalizing distressed neighborhoods.”

Times staff writers Ricardo Alonso-Zaldivar and Maura Reynolds contributed to this report.