The biggest state budget gaps will never be closed until politicians use the tools they already have to challenge the overweening power of public employee unions. Meanwhile, Washington can help by lifting some of the burdens it imposes on the states. Converting Medicaid into a block grant, for example, would remove one big excuse governors now have for failing to do more to control their health-care costs. By giving states more flexibility to deal with this program and other federal mandates, Congress will have greater justification for telling governors to fix their own problems.