Budget cuts and tax increases are dragging an already fragile economy.

As a 1963 graduate of the University of Maine at Orono, who maintains a fondness for the culture and the people of the state, I would like to pay tribute to one of its outstanding U.S. senators – Susan Collins.

During the past year, the National Governors Association has worked closely with Sen. Collins as well as Sen. Ben Nelson, the former governor of Nebraska, on a state fiscal relief package which was recently enacted as part of the Jobs and Growth Tax Relief Reconciliation Act of 2003. This $20 billion in aid is critical to assisting state governments weather the most serious fiscal crisis since World War II.

The causes of the financial storm are twofold.

First, there was an unprecedented drop in revenues of 6.3 percent in 2002, the only year-over-year decline in more than 50 years. Second, not only did revenues fall off a cliff, but there was an explosion in health-care costs. Health care costs, which represent about 27 percent of state budgets of which 20 percent is Medicaid, are now growing 11 percent per year.

The combination of these two trends was forcing states to make draconian cuts in spending and significant tax increases. At this time last year, states were beginning to eliminate health care benefits for over 1 million low-income women and children. A Kaiser Commission study last year found that 45 states cut their spending growth and 41 reported that they had plans to make additional cuts in fiscal 2003. According to the survey:

• 40 states planned to implement prescription drug cost controls;

• 15 states would reduce Medicaid benefits;

• 18 states would cut Medicaid eligibility; and

• 15 states would increase beneficiary co-payments for services other than prescription drugs.

In some states, such as Oregon, teachers were terminated and schools closed. Other states eliminated job training programs, child care support for welfare workers and after-school programs. Not only were the magnitude of the cuts extremely large, but planned tax increases also were significant.

The combination of the budget cuts and the tax increases was also beginning to be a significant drag on an already fragile economy. The enactment of the state fiscal relief package will have two huge, positive impacts.

First, hundreds of thousands of low-income women and children will continue to receive health care and more teachers will be in classrooms helping students meet the new standards so critical for the U.S. in maintaining our international competitiveness.

Second, the fiscal relief package is one of the most powerful economic stimulus components of the tax cut bill. This will help offset the increasing risks of economic deflation and create hundreds of thousands of new jobs.

Throughout the debate on state fiscal relief and the tax bill, Sen. Collins demonstrated strong leadership and unswerving commitment to assisting states maintain critical state services, particularly health care and education. She maintained her commitment against long odds as well as intense pressure from other members of her party to use these funds for additional tax reductions.

All of us who represent state government and its support for low-income citizens owe her our gratitude.

Raymond C. Scheppach is the executive director of the National Governors Association in Washington, D.C.

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