The Return Of 'New Federalism'

President Bush told the nation's governors on Monday that he'll push for a "new federalism" to "streamline rigid rules and regulations" imposed by Washington and give states more flexibility to spend federal dollars.

"When the history of this administration is written, it will be said the nation's governors had a faithful friend in the White House," Mr. Bush, the former governor of Texas, told the National Governors Association meeting in Washington.

The NGA met for its annual winter meeting the same week that the president is to unveil his budget blueprint, reports CBS News Correspondent John Roberts. Republicans are largely cheering his $1.6 trillion 10-year tax cut. Democrats are expressing concerns that the tax relief is too large and will crowd out spending on education and health. Mr. Bush is to address a joint session of Congress on Tuesday night, releasing his blueprint the next day.

"The framers of the Constitution did not believe in an all-knowing, all-powerful federal government. They believed that our freedom is best preserved when power is dispersed," the president said. "So let me make this pledge to you all: I'm going to make respect for federalism a priority in this administration."

Mr. Bush said he's creating a government working group that will draft a presidential executive order requiring federal departments and agencies to respect the rights of the nation's states and territories.

As one example of streamlining, White House spokesman Ari Fleischer said Mr. Bush wants to consolidate 60 existing federal education programs into five. That would require congressional approval, but the working group will study what similar steps can be carried out via presidential or administrative action.

In the 1980's, President Reagan championed a "new federalism." The idea struck a chord with Republicans who wished to limit the size and scope of the federal government and to keep power as close to the local level as possible. Congress, however, never seriously considered Mr. Reagan's plan.

"We are ready to roll up our sleeves ... to make sure that new executive order is Reagan-plus in terms of how it recognizes the role of the states," said Michigan Gov. John Engler, a Republican who is the NGA's vice chairman this year.

On Mr. Bush's tax cut plan, Engler said he wanted the tax cut that was, as he put it, "big, fast, across the board ... and right now."

Maryland Gov. Parris Glendening, a Democrat and chairman of the working group, said Democrats also wanted to cut taxes, but believed Mr. Bush's plan was too big, tilted toward the rich, and could undermine other priorities.

"Some of us are very concerned that the tax cut being proposed is too large and will not permit funding for some key issues such as education and prescription drug coverage for the Medicare health care program for the eldrly," he said.

And, looking to trim budget fat to pay for all of his priorities, Mr. Bush is targeting programs beloved by his allies in corporate America, aiming to cut government subsidies that help businesses to research, invest, and sell.

Mr. Bush's former colleagues are balking at one of his cornerstone plans: Billions of dollars in block grants to provide immediate prescription drug coverage for the nation's neediest seniors.

Only a handful of states have programs in place to deliver on Mr. Bush's proposal. Others cringe at the thought of yet another expensive entitlement and worry that when the federal grants end, they'll get stuck with an enormous bill that grows at the rate of 15 percent a year.

While states would rather leave prescription drugs to Congress, they do want more authority over Medicaid - the state-run system that looks after health care for poor Americans. Declining tax revenues in many regions are on a collision course with skyrocketing health care costs.

Governors have proposed a radical restructuring of Medicaid -- asking for the power to redesign programs, streamline costs and expand coverage with a package of more modest benefits to people with higher incomes.

The president dribbled out other would-be winners in his budget plan all last week, proposing to spend more on schools, health care for the elderly and medical research. Little was said about where he would cut.

Mr. Bush must find areas to reduce spending to make room for more than just his tax cut. The president wants to hold next year's overall discretionary spending to four percent growth and to pay down the national debt. Throw in a proposed 11.5 percent increase for the Education Department and a 10 percent boost for Medicare, and that all means that other federal programs will have absorb the difference under his budget outline.

One likely target is the U.S. Export-Import Bank, which guarantees loans to foreign companies in projects that use U.S. products and services. Also targeted are federal programs that bring telephone service to rural areas.

"There will definitely be some restraint and even some, yes, cuts in terms of government's involvement and subsidy of corporations," White House budget director Mitch Daniels said, citing government assistance for research and investments.

Several prominent business groups, pointing to last week's report of a record U.S. trade deficit, already have protested cuts to the bank. Word of the proposed reductions began leaking several days ago.

But by trimming the corporate subsidies, the Republican president is showing he will stand up to a key benefactor. The move could also help him counter charges by Democrats that his tax plan favors the rich.

U.S. businesses strongly backed Mr. Bush in his campaign last year, and some have been seeking corporate tax cuts. The president has resisted the idea.

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