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States once again worried about budget fights

US President Obama receives a standing ovation as he addresses a Joint Session of Congress on Capitol Hill in Washington
US President Obama receives a standing ovation as he addresses a Joint Session of Congress on Capitol Hill in Washington

(Reuters) - As the Congress enters the latest battle in the budget wars, states once again fear they will become fiscal collateral damage.

On Wednesday, the National Conference of State Legislatures, which represents lawmakers from across the country, sent President Barack Obama, Speaker of the House John Boehner and Senate Majority Leader Harry Reid a letter urging them to "examine all possible avenues for deficit reduction, including discretionary spending, entitlement reform and revenue-related options.

"We also understand that funding targeted for state and local governments has been and will continue to be reduced. However, our message remains the same - states will struggle if a disproportionate and excessive burden is transferred to us," the group wrote.

Specifically, they asked the federal government not to create new unfunded mandates, which are programs that states must carry out with no extra money. They also said the federal government should not force states to maintain high spending levels for Medicaid, the healthcare program for the poor administered by the states with partial reimbursements from the government.

The lawmakers would like infrastructure funding maintained at "levels sufficient to continue the economic benefits they provide" and programs for low-income populations "held harmless from spending reductions."

A SALES-TAX SUGGESTION

To help states cope with the impending federal cuts, they suggested allowing them to collect online sales taxes.

The letter hit the same points as other messages state policymakers have sent federal leaders for the last year. Since Tea Party conservatives swept state and congressional elections in November 2010, they have fought hard to drive down government spending and reduce the federal budget deficit. States have had to contend with reductions along with the ever present threat of a federal shutdown, which slows the flow of money to states.

All states except Vermont must end their fiscal years with balanced budgets, which means that, unlike the federal government, they cannot spend more than their revenues allow.

As states' revenues plummeted from the housing downturn, financial crisis and recession, legislatures slashed spending, hiked taxes and turned to the federal government for help. They also raided reserves. Now, the temporary tax hikes are expiring and voters are showing little appetite to raise levies. State "rainy day funds" are depleted and revenues are coming in lower than expected in many places.

At the same time, the Congress cut a deal with President Barack Obama this summer to begin automatic spending cuts next year.

In November, Dan Crippen, the executive director of the National Governors Association told reporters: "It would seem state and local governments are in for further reductions in federal funding."

The state legislators encouraged Obama to "go big" in the budget he proposes next month, adding:

"Putting America on a sustainable fiscal path is crucial."

But they also asked that Obama's proposal, and the congressional budget resolution, explain "the potential intergovernmental and fiscal federalism implications of any recommended actions."

(Reporting by Lisa Lambert; Editing by Jan Paschal)

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