 Well, good morning, all, and Chairman Lamar Alexander and Vice-Chairman Bill Clinton and ladies and gentlemen, welcome to the White House again. It's an honor to have you join us this morning, governors of the states and the territories alike, and it's good to see so many of you were here at dinner last night. I don't mean to give any of you ideas, but you know, when those dinners are over, my job, you're already home. As we gather today in this historic house, one president and some 50 governors, we do so as the inheritors of the federalist system that was designed by the founding fathers some two centuries ago. It was the intention of the founders to keep government close to the people, as I said last night, and to this end, they entrusted the state governments with duties like the protection of property rights and the enforcement of criminal justice, those duties that affected the people in their everyday lives. And indeed, when Alexis de Tocqueville toured America in 1850 or 1831, he found that it was the state governments with which the people were most involved. Then he wrote, are affected by the sovereignty of the union only in connection with a few great interests, but state sovereignty enfolds every citizen and in one way or another affects every detail of daily life. So it was that from an early date, vigorous state governments had become an integral part of the American way of life. In subsequent decades, of course, the national power began to grow. In certain respects, this proved necessary and good. It was vital to our history as a nation, for example, that states should fail in their attempt to cede from the and thus destroy the union. But beginning perhaps in the 1930s, relations between Washington and the states became profoundly unhealthy. The national capital began to swamp the states with social programs and economic regulations. It taxed the American people more and more heavily. Leaving little leeway for the states to raise revenues of their own. By the 1970s, the states had in many respects been reduced to the status of mere functionaries, mere units of administration of the federal government. And this removed government from the people and placed it in the hands of a Washington elite and permitted it to become slothful, ineffective, and bloated. And when our administration came to Washington, we took it as one of our chief aims to reawaken the federalist impulse and approach the constitution with a new fidelity, in short, to restore power to the states. Indeed, in an address to the National Conference of State Legislatures, more than four years ago, I spoke of a, quote, quiet federalist revolution that promises to be one of the most exciting and noteworthy in our generation. Well, to widen the scope for independent state decision-making, we combined nearly 60 categorical grants, as you know, into nine block grants. We've slashed red tape. Indeed, since 1981, the paperwork burden imposed by categorical grants has fallen by 90%. We enacted the Job Training Partnership Act, a law that eliminated an entire federal bureaucracy, and enabled you and the states to work directly with private industry councils to help those in need prepare for and find jobs. In 1985 alone, the number of people that you placed in jobs rose to more than half a million, and more than nine out of ten of these people were economically disadvantaged. Today, we're counting these bold efforts to send powers back to the states, or continuing, I should say, not counting. Our new $3.3 billion transportation block grant, our expanded primary healthcare block grant, and our new pollution control block grant will give you and the states wide latitude in choosing your own methods of administration. I have to interrupt for a minute here and tell you a little experience when I was governor. We received word, one of our departments in the state government, that the agency through which it dealt or that it dealt with in Washington was sending out an audit team to do a complete audit, and they would prepare themselves for this audit. Well, this took all the time of this particular agency that it couldn't do anything else, but prepare for this audit that was going to take place, and nobody came from Washington, and finally they came to me and complained. So I put in a call to Washington and to the man that they dealt with there. They were all ready, and they were waiting. You know what the answer was in Washington? Well, we've never done this before, so we're not ready yet. And yet they had called it, when they told us to do it, a routine audit. I think it had to do with some of the things that we were doing about federal bureaucracy at the time. Well, you know that what I've directed my staff to work with you in compiling lists of federal regulations that impinge upon your prerogatives and can be changed without congressional approval. But despite all that we're doing to promote federalism here in Washington, our efforts take second place to the remarkable new initiatives that you are overseeing in the states. State governments are holding down the price of Medicaid. You're attracting venture capital. You're fostering international trade. Indeed many of you here today have just returned home from trade missions. Jim Thompson has been to China, Korea, and Japan. Martha Lane Collins has traveled to both the far and middle east. And of course, Mar Alexander has had success after success in attracting foreign trade and investment. To my mind, you represent our nation's best sales force. And I urge you all to go on adding to new jobs and economic growth by promoting international trade. In education, states have moved with special energy. All 50 states now have task forces on education. And in many states, promising new programs like merit pay for teachers are already in place. Regarding the economy, states have come to understand the power of tax policy to spur growth. In recent years, many states have cut taxes. And while our administration has pushed Congress to create enterprise zones to no avail, today 27 states have more than 1,400 enterprise zones already in place. And these low-tax zones have seen the creation of tens of thousands of jobs and billions in capital investment. Yes, the quiet revolution I spoke of over four years ago is well underway. Indeed, the states today are governing so well that you can teach the federal government some lessons, lessons like the importance of operating in the black and of giving the chief executive a line item veto. In the words of columnist James J. Kilpatrick, it becomes increasingly evident that the state governments as a group are governing more responsibly than the national government. The most interesting political activity these days is often not in the national capital, but in the state capitals. Well, I happen to think that's just what the founding fathers had in mind. None of this has come easy for the states or you, their governors. I know, as you know, I used to be one of you, every successful initiative represents endless hours of grueling work and the defeat of a thousand objections. Every healthy budget represents the courage to take on special interests. I know there are times when you don't get the credit you deserve, so I want to take this opportunity to commend each of you, Republicans and Democrats alike. No finer thing can be said of you than this, that you've taken government back to the people. Looking now to the future, I'd like to focus on one particular aspect of federalism, one special area of shared state and national responsibility, our system of welfare. The sad truth is that our welfare program, state and federal alike, add up to one long tail of failure. From the 1950s on, poverty in America was on the decline as economic growth led millions up to prosperity. Then in the 1960s, in spite of the billions spent on programs like the famous War on Poverty, poverty as measured by dependency stopped shrinking and actually began to grow worse. I think you could say poverty won the war. Yet how could this have happened? How could such good intentions have gone so utterly astray and so many resources have been squandered? Today, we're beginning to understand. In the fight against poverty, we now know it is essential to have strong families, families that teach children the skills and values that they will need to succeed in the wider world, families that provide mothers and fathers with comfort, inspiration and a focus on their labors. How often have we heard of the immigrant father laboring far into the night to give his children the advantages that he never had? How many self-made men and women in America owe their success to the strength of character that was given to them by hardworking, loving parents? And yet when we ask ourselves whether our welfare programs have encouraged poor families to form and stay together, we must answer far from it. Instead, they have subjected poor families to a subtle but constant undermining force, a force not holding them together but pulling them apart. With only about half the amount currently spent on welfare, we could give enough money to every impoverished man, woman and child to lift and keep them above the poverty line. Instead, we waste vast amounts on a system that actually holds these people down, often in misery and squalor. We're in danger of creating a permanent culture of poverty, as inescapable as any chain or bond, a second in separate America, an America of lost dreams and stunted lives. My friends, I believe that we're too great a nation, too good of heart, too bold in finding solutions to permit this to continue. Many of you already preside over important welfare innovations. Perhaps the most striking among these is workfare, the attempt to give welfare recipients the training and sense of self-respect that can come only from work. Today, 39 states have in place some form of welfare work program or workfare. Just this month in my State of the Union address, I directed our administration to study the welfare problem and report back to me with recommendations by December 1st. But the federal government is responsible for only a portion of our welfare system and can do little on its own. So today I invite you, the chief executives of the 50 states to join us in many respects to guide us in our effort to reshape the means by which we help those in genuine need. Let us strive through the federalist system to create a land where there is no permanent welfare culture because there is opportunity for all. Let us labor above all to build a nation where the sacred institution of the family receives unstinting encouragement and support. And I've talked too much now, Lamar, and I understand that there are going to be some questions, and I will. Mr. President, well, thank you very much. We'll try to get right on to the questions and I'll try to call on the governors. First, let me thank you again for your time today and an enjoyable evening. Last night, we're all glad Rich Little doesn't do governors. And Saturday, we had a good meeting that 15 or 20 of the governors met with some of your senior people. We accept your invitation to work with you on welfare of the budget cuts and changes which we have to deal with over the next few years. And what's difficult is Medicaid. And without getting into it, we'd like to see it all here. We'll take the rest. And you even proposed that one time and maybe it was our fault it didn't get worked out. But we'll work with you on that and welcome you to the invitation. Governor Clinton. Mr. President, first of all, let me thank you for your time and the time of your age and the vice president today and the dinner last night. I'd like to make just a comment about the budget. Your position on the budget was ably presented here earlier by Mr. Miller and the issue of the defense budget was ably presented. A lot of us who've tried to study and be responsible in studying the trends in the budget understand that defense has to be about where it is as a percentage of GNP and understand your position there. The problem is, I think, in the details of some of the proposals on the domestic side. The governors, many of us Democrats have supported a lot of your budget cuts domestically, including those which directly affected us. But in this particular budget, there are some problems that I think will undermine your very attempts to reform the welfare system and lift up the children of this country. And I would just mention, too, and ask that you look into it. Governor Alexander alluded to the Medicaid program. The way the proposed Medicaid program works under your proposed budget, for example, with the cap would require the poorest state in the country, Mississippi, with the highest infant mortality rate, to increase its own expenditures 28% to maintain the current level of services according to our staff. That sort of thing would have, I think, a very adverse impact. So I don't want to take a lot of time today. I would just ask that you ask your people to look again at Medicaid and at the one education program that affects children more than any other, chapter one, the one that enables us to use a little of your money to teach those terribly underprivileged children how to read and how to get a good start in life. We'll try to live with some of these cuts. We know we're going to have to. We'll have arguments over the details. But I think this welfare reform you're undertaking is profoundly important for the future of this country. I hope it can be a bipartisan effort. I would ask you in that spirit to have your people look again at the proposed Medicaid cuts and the proposed cuts in chapter one and education. Thank you. All right. We will look at those. But Governor, some of these points, let me just suggest something, however, about. I know that, of course, some of these things that have been directly going to states, this causes a problem when we change the rules of the game. But I recall back when I was first beginning to vote, when the total tax take was about ten cents out of the dollar earned for governments, federal, state and local. But at that time, two-thirds of the tax dollar went to the states and local governments and only one-third of the federal government. And over the years of all our social experimenting, today two-thirds, and it's not a dime anymore, it's about forty cents or more, two-thirds of the tax dollar is taken by the federal government and only one-third of the state and local level. So I feel that if we can harness and bring back the proportion it should be that we will have loosened the strings that we have on taxes and tax sources and thus opened up more that you can, where you feel the need, be able to go where I know of my own experience, that was where do you turn, the federal government's gobbling up so much that there isn't very much left to you when you really have a legitimate reason for implementing a program and paying for it. With regard to Medicaid, yes, I remember our own experience with that, and I think again that we must see if we're doing anything to further harass and hamper you, because I remember when we discovered a woman in our state that had, in less than two months, had had forty complete physical examinations by forty different doctors. Now obviously she was a hypochondriac looking for a doctor that had told her she was sick and none of them had found anything wrong with it. Well we paid Medicaid, we paid for forty complete physicals, but we will look into these things that you are talking about and where we can be of help. Governor Carlin has a question. Mr. President, you're correctly indicated that on frequent occasions the states have some pretty decent ideas, and I would just like to say this and ask you a question. We've learned from our experience as you did in California and have here that there are times when the executive branch and you in particular the President must provide real strong leadership. We face this budget crisis this year particularly difficult for us because of Graham Rudman and the possibility of a train wreck making the determination at the end of the year what's going to happen. Is there any chance that you would consider early this year pulling the congressional leadership together for whether you call it an economic domestic budget similar or whatever so that we can resolve this in a sensible way. We know we're going to get cuts. We know they're going to be significant, but the sooner we know and the more sensibly they put together the better everyone's going to be. Is there any chance that you will initiate the type of leadership that will pull the Congress together because without your leadership I sense that as Senator Amin and she said yesterday a train wreck is going to take place and from that wreck we will then be given the final budget. Well we're going to try to avoid any train wreck and yes we have started and intend to be in touch with the Congress as much as we possibly can. I have just the other day appeared before one group what's called the Republican Conference of all of our Republican Congressional members and before you think well yeah look at he's doing that with them I have to tell you one of their complaints was that I've been spending too much time with the Democratic Congressmen. They wanted an even hand in it so I had to promise them that it was natural I think that we probably were guilty that since the majority is of the Democratic Party and the leadership is of that party that it's only natural that we would sit down to talk with them about things we were going to advance and maybe we did neglect our own people so now we're going to meet with all of them and we will and we don't want to drop any surprises on you if we can help and as I say we want to we want to make it possible that there are more tax sources for you and by reducing not only the cost of the federal government but the interference by the federal government in so many things. I know that you've all had the experience of programs that when you looked at the regulations laid down by the federal bureaucracy you said I can do this program with a smaller amount of money if they'll let me do it the way it would fit our state and this is what we're trying to do is to give you more control. I know that when we when we turn to block grants in one area alone over 800 pages of regulations were boiled down to 30 pages of regulations. Governor Orr has a question Mr. President. I can hear you. All right sir. I am speaking to you at the moment as chairman of the transportation committee of the governor's association as well as from the state of Indiana. I have a proposal which is now before our committee which we will entertain. I would like to make a comment about it and then ask for your reaction. It is federalism in its fullest state. We started on a track of in 1957 of changing the way by which we financed our highway programs. Up to that time it had been done largely by the states and largely by user taxes with motor fuel being most of what was taxed. In 57 with the interstate highway program we began to a federal tax and it gradually increased in 1982 by five cents so that it is now at the level of nine cents. I would like to see because it is timely because the interstate highway program is gradually coming to an end in the next four or five years probably of will and because all of the highway programs need to be reauthorized in this fiscal year. Consideration given to a turn back of that nine cents to the states. This would place the responsibility for planning and executing all of the highway programs, construction and maintenance with the exception of the interstate program and a few interstate bridges across rivers and that sort of thing that are boundaries between states which could be carried on by some of the taxation on diesel and one or two other things. All of that other go to the states. It would simply mean that we would be back where we once were before the interstate program began and we, I realize, would be running counter to your own recommendation and that of the Secretary of Transportation, you mentioned the turn back of $3.3 billion. That does carry with it the burden of federal regulation and federal requirements which make the work more costly and probably lengthen the time in which it can be done. We'd like to push this and I intend to do so during these meetings and hope that we will be, as governors, able to present this concept to the Congress. I'm curious as to whether this meets your test of federalism, whether this would be something which you could come to push. I'd like for us to look at this. We've talked about this just a little bit lately. The reason for the five-cent tax in 1982, a tax increase, and I earmarked it that it had to be specifically for the interstate because we had been given a report that the deterioration of interstate highways and bridges was such that we could be faced with a tragedy someday of a school bus or something going through a bridge and that there were long stretches of the interstate that were being bypassed now that our industrial concerns that have heavy trucking and so forth were having to reroute their trucks because of this deterioration. So this was, you might say, almost an emergency thing. We said to get these highways and these bridges back on the track. Now, we have been spending it as it came in, but I think the time has come for us to study and see now, have we passed that crisis point, have we done what was needed to be done, and then how can we work better and to give you more control over that transportation in your own states. And we're willing to even look at the whole thing of the interstate and so forth as to where it should be administered. But we'll get on that with the Department of Transportation and we'll welcome all of your own ideas and views. We supported the increase in 1982, all of us did, and caused it, I think, to happen. We at least helped. We'd be happy to help on this. All right. No, I was just going to say that, you know, what I don't want us to get caught doing, now that we've established that thing, is what I have always criticized. I've always said that the nearest thing to eternal life that we'll ever see on this earth is a federal program. Governor Ducac has had a point. President, this is a continuation of the discussion I had with Jim Bacon before you arrived. You've expressed yourself very clearly in the subject of new taxes. We all hear that message. But there's another source of revenue which is out there in the Philippines. It's available without raising the taxes the average American market has done, and that's going out and collecting revenues that are owed and are being paid. Twenty years ago, the rate of tax compliance in this country was 94%. Ten years ago it was about 90 to 93%. Today it's 81%. The difference between 94% and 81% tax compliance is 60% $5 billion in revenue every year that's being collected by the federal government. And I would just strong your view in your administration to look at this very seriously. It's not only important for trying to balance the budget, but it's grossly unfair to 80% of the taxpayers in the country to pay their taxes. They have this level of evasion of avoidance and it's growing as a president. It has grown in the past ten years. Governor, here's where some of you could be of some help to us. I know a number of you have spoken to me about this and in states where you've tried this and the immediate influx of money that has come about through the Amnesty program. Sure, this is what you're talking about. The one thing that there seems to be no answer on that we would like to have is do we, what is the follow-up with regard to compliance with the tax laws after the first Amnesty? And what we need to hear from some of you who maybe have been doing this for a longer period of time, do we create a group that simply carries on the same way and then waits for the next Amnesty and does this every few years down the road? Or do we have, does Amnesty then create a much greater compliance so that we don't have to think about having repeated Amnesties? And we need to have your help on that. Part of this what happens is the combination of tough enforcement and resources and Amnesty is literally thousands and thousands of pieces of taxes. Once they're in, they're not going to let them up. So our experience is that there's been a major concern for the relativism of the government and we would be delighted to work with the insurance. All right, this is what we would like and because we want to take a fair look at it. Our own people had been very wary of this other thing. I'm concerned about seeing if that's character and I'm also concerned about in the farm credit bill that we signed before Christmas, the three members of the board to oversee that is not yet been appointed. Time is really of the essence because we're so close to a spread of planning and can you do something to help us spur on the farmers home administration and the farm credit system to make sure we get their full cooperation to help our farm families get the operating loans they need for this brings planning. Well, do everything we can do to do that. I didn't know that there was some hold up but I'll look into it right away. We want it. You need to appoint the oversee the reforms that happen in the farm credit system. I'm sure Secretary Baker can help. We're close. We're close on that. He says we're close on that. Well. If you do have time it's really of the essence and we've worked for a long time. I'm pleased that the USDA today informed us that the interest buy down this will help the low guarantee program. Yeah. I just can't stress how significant this is for literally thousands of farm families. I know. I know. Well, as of now I'm nudging. That's the government situation. We have followed very carefully your. Remember to the welfare reform initiative that your proposals for study of cash talk to help us insurance. I just want to let you know that we wanted to work with you and your staff people as early as possible to be involved in that to formulate that policy. And if they knew what to do please call. We would. We'd be great. Call me. All right. Make a note of that. We will. Governor Nye. An energy producing state. My question may not be of general interest. So I want to renew my previous request for a later opportunity to have a dialogue with you on energy. Our economy is in a trauma. We're not alone. Of course. We are concerned that the bottom is not. Even yet inside. We're also concerned about the national security. And my question, Mr. President is will you personally along with appropriate support personnel meeting the immediate futures with governors of producing states and their personnel to discuss overall the energy problem. I think we can. I think we can do that. Yes. We. I know the problem that is falling on you. It's. It's one that is agony in some places and. Great source of delight in others. Yes. EPA will begin shutting down hazardous waste sites. Cleanups because the super fund is running out of money. Now. We're committing our own resources and many of the states. We're committing our resources and many of the states. We're committing our resources and many of the states. In our case in New Jersey, a quarter of a billion dollars a year of state money to these sites. But we simply have to have the super fund as a component of those cleanups. Now. I know you're supporting the reauthorization of the super fund, but there seems to be a terrible log jam between the House and the Senate and nothing at all is happening. Could I ask for your strong and active support, including if necessary, try to knock a few heads together in the Congress to try and get some kind of compromise so that these way sites come shut down and we continue to clean up. I think the biggest argument is not about whether to have it or not. It has to do with the funding and how much funding we should do. And yes, we're pushing on that very hard. We want to keep on with that. Remarks about the rejuvenating powers of state governments and how effective they have been. And I think we all agree with that. We've also taken ultimate advantage of a lot of the tools available to us from the federal government to make that happen. Things like the job training partnership at UDAG grants and some states have been able to add to that their own mechanisms. There are really two problems. One is can we do it all on our own? And some states that are having economic problems are just getting out of the woods as Vermont is. We're getting rid of a deficit and getting into the clear are very anxious that without these tools to leverage our own initiatives, we will create greater inequality among states economically. That we can't all pull ourselves up by the bootstraps to the same amount as it was pointed out that Mississippi can't support Medicaid to the same extent as Massachusetts or another state. How do you deal as you're designing the new federalism with the unequal power of states to accept the federal burden? And how do we really create an equal national system giving that power back to the states for recognizing the different capacity of the states to absorb that burden? Well, one of the things that we've talked about and that we've failed in with the Congress was in regard to the renewal of the cigarette tax. We had desperately hoped and tried to persuade them that it should drop to eight and leave the other eight then for states that wanted to pick up. And we're looking at many tax sources. We think that the best thing we could do, rather than the federal government coming forth with money and always with the strings of regulations and so forth attached, that what we should try to do is find tax sources that have been preempted by the federal government and that could be better used by you but then you at the state level taking over with that the responsibility that goes with it. We appreciate that. I think in the grant program as well there has to be a recognition that some states may need more help than others and states that are in a financial crisis such as the oil producing in the farm states may need more help than those that are not. Yeah. Well, we're trying to be reasonable on that but I think if we all of us start to comparing our troubles and you look at the deficit which is built up over 50 years now in the federal level we're the ones that have to get our house in order or we're all going to be in trouble. Mr. President, there are at least a dozen governors who would like to ask more questions but you've stayed longer than you intended and it becomes my unhappy duty to say the hook has come in and I have to bring this to a conclusion. Thank you for your time very much. Well all right and the others with questions don't hesitate to communicate with us on them and may I just say one thing in closing here you know there are so many at the national level that try to look at the state says administrative districts of the federal government instead of what you are actually are right now standing around this table is the highest group of elected officials in the entire nation. If a bomb fell on this place we're out of business right now. Thank you all very much.