In a letter to Democratic and Republican Congressional leaders, Mr. Obama said the “mounting employment crisis” in the states “could set back the pace of our economic recovery.”
Proponents of aid to the states, including some Congressional Democrats, governors and mayors, have been urging the president to weigh in on proposed legislation, initially providing up to $50 billion in assistance, which has been derailed in the House and Senate. Mr. Obama did not endorse a dollar figure, reflecting the fact that Democratic leaders were trying to determine what amount could win enough votes in their party, given Republicans’ near-unanimous opposition.
Nearly five months after Mr. Obama, in his State of the Union address, called for a final round of stimulus spending for local governments and tax cuts and lending programs for small businesses, Congress continues to haggle over several measures to create and save jobs because the economic case for stimulus has collided with lawmakers’ political fears of even higher deficits.
In his letter, the president said state and local governments had already cut 84,000 jobs this year, and would have cut more if not for assistance from the two-year $787 billion recovery act Mr. Obama signed a month after taking office.
Unlike the federal government, all but one state and most local governments are required by their laws to balance their annual budgets, and they continue to struggle against the increased costs of relief programs and lost revenues from high unemployment and home foreclosures.
Mr. Obama did not propose to offset the cost of any state aid with savings from other spending cuts or tax increases, as some conservative Democrats and Republicans have demanded. He reminded the leaders that he has proposed several ways to reduce future spending, including a three-year domestic spending freeze starting in the coming fiscal year. But his advisers, and many economists, argue that additional deficit spending is needed to keep the economy from relapsing into recession.
Making the economic case for helping the states, Mr. Obama said that if teachers and others are laid off — his education secretary, Arne Duncan, has said that without federal aid, up to 300,000 fewer teachers would be in classrooms this fall — “it will mean more costs helping these Americans look for new work, while their lost paychecks will mean less tax revenues and less demand for the products and services provided by other workers.”
He continued, “That is why the actual cost of saving state and local jobs is likely to be 20 to 40 percent below their budgetary cost.”
Mr. Obama had supported about $50 billion in aid initially — $25 billion for public employees, $23 billion of which would go for teachers’ salaries, and $25 billion to offset states’ increased costs for their share of Medicaid, the public health program for the poor, people with disabilities and many nursing home residents.
The president also urged quicker action on his proposal to expand tax breaks for small businesses and to create a $30 billion lending facility because many banks remain reluctant to lend to small businesses. And in his weekly national address, Mr. Obama called for Congress to avert a planned 21 percent pay cut for doctors who see Medicare patients.
The so-called doc fix has been stalled in the Senate. If lawmakers do not approve the billions of dollars in spending, the cut is to take effect this week. Mr. Obama warned that if Republicans blocked a vote, it would “undoubtedly force some doctors to stop seeing Medicare patients altogether.”
The cut is based on a formula Congress enacted in the late 1990s to slow the growth of Medicare spending, but cuts have been deferred every year since 2003. Democrats are proposing another temporary fix as part of a package that would increase tax breaks and extend unemployment benefits.
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