Governors lobby for aid as fiscal year dawns

WASHINGTON (Reuters) - A bipartisan group of governors on Wednesday urged Congress to continue sending them emergency Medicaid funds through the first half of 2011, saying that for many the lack of funds could lead to thousands of layoffs and the end of the fragile economic recovery.

On the same day, U.S. Sen. Scott Brown of Massachusetts announced he would introduce a bill to use unspent stimulus funds to provide enhanced federal assistance for Medicaid, the healthcare program for the poor administered by the states.

The 10 governors said they had already cut millions from their budgets since the recession hit at the end of 2007, and that if the funds were not approved in coming weeks they would have to slash funding for services like hospice care or preschool programs.

"I just want the people in Washington to understand what the governors will have to deal with on the ground because of their inaction," said Michigan Governor Jennifer Granholm, a Democrat whose state has been one of the hardest hit by the recession. "The consequences on the ground, across the country, will be devastating."

If Congress fails to act, the pressure on states in the early stages of recovery could force the nation into a "double-dip recession," Granholm added.

A representative for Brown, a Republican, did not immediately return calls, and few specifics were provided on his proposal.

Last year's economic stimulus plan raised federal payments to states by 6.2 percent with extra money for those with especially high unemployment. States had asked for a six-month extension of the aid, at a cost of about $24 billion. During negotiations last week, the Senate weighed continuing the aid through June 2011, but gradually lowering the amount.

The Medicaid funding passed in the House of Representatives twice and in the Senate once. Then, fiscal conservatives began voicing concerns about adding to the federal deficit.

Last week, a jobs bill that included the measure failed to reach the floor of the Senate. A similar bill passed the House, but Medicaid money was removed at the last minute.

For most states, fiscal 2011 starts on Thursday and more than half of the states banked on receiving the extra Medicaid money when drafting their budgets. Congress could pass the extension later but governors say they will begin cutting in the next couple of weeks if they do not receive a signal it will be approved.

"One thing I think we're pretty certain -- we're getting the signals -- that perhaps there will be some money, but it won't be a billion," New York's Democratic Governor David Paterson told reporters after a press conference in Washington on Wednesday.

For a related graphic on how much each state anticipated receiving please see link.reuters.com/gyw24m

According to the think tank the Center on Budget and Policy Priorities, states will likely have to close budget shortfalls totaling $140 billion in fiscal 2011, in what will be the biggest gap since the recession began in 2007.

(Additional reporting by Lisa Lambert)