In the name of homeland security, motorists are going to see costs skyrocket for driver's licenses (search) and motor vehicle offices forced to operate like local branches of the FBI, the nation's governors warn.

The new federal law squeezed this spring into an $82 billion spending bill had Republican and Democrat governors fuming at their summer conference, with several bringing their complaints to Homeland Security Secretary Michael Chertoff (search) at a Monday meeting.

"It's outrageous to pass this off on the states," said Republican Mike Huckabee of Arkansas, incoming chairman of the National Governors Association. "You're essentially asking the front-line clerks at the DMV to become an INS agent and a law enforcement agent."

The law that passed in June goes beyond an earlier measure that sought to standardize state driver's licenses, requiring that states verify license applicants are American citizens or legal residents.

"This is going to drive the cost of driver's licenses for ordinary folks through the roof," said Democrat Tom Vilsack of Iowa. "I think it's going to drive people crazy."

Chertoff assured governors his agency will work with them to design a driver's license system that is efficient for consumers and more secure. He said it is an opportunity to strengthen safeguards against identity theft as well as terrorism.

"We want to work with the states," Chertoff said. The law gives states until 2008 to make the necessary changes.

It would demand skills of motor vehicle office clerks far beyond what is currently expected, governors said.

Gov. Bill Richardson, a Democrat from New Mexico, said the law — known as the REAL ID Act (search) — unconstitutionally infringed on state laws in several places, including his own state where illegal immigrants have been able to get licenses.

New Mexico's approach has made roads safer, since licensed immigrants can get insured, he said, adding that it also helps the state keep track of immigrants and integrate them into the community.

"It's a shortsighted, ill-conceived initiative," Richardson said. "We'll challenge it constitutionally."

On Sunday, governors said they'd agreed on a monthslong bipartisan proposal to improve the federal-state Medicaid program. They said it should help slow the program's soaring costs, and let states experiment with more effective ways to deliver health care.

If accepted in Washington, the governors' plan would allow states to demand co-payments from poor, disabled and women with children, and add tools to curb seniors from giving relatives their assets so they could get Medicaid-funded long-term care.

Sen. Charles Grassley, the Iowa Republican who chairs the Senate Finance Committee, said the governors' work was crucial to winning agreement in Congress on any Medicaid changes. President Bush wants to trim the growth in the program by $10 billion over five years.

The governors proposal "is really key to getting something done. We will not get a bipartisan agreement in Congress without a bipartisan agreement from the governors," Grassley said after meeting privately with governors.

Governors also took aim at a piece of Bush's new Medicare drug prescription policy, with more than a dozen weighing a legal fight to challenge part of the new law.

Their concerns centered on a relatively small portion of the policy that would affect the elderly who are poor enough to qualify for Medicaid and old enough to qualify for Medicare.

Governors have long argued that the federal government should pay the costs of that group, which are significantly higher per person than for the rest of the Medicaid population.

The new Medicare law means the federal government nominally takes over responsibility for that group, but requires states to continue to pay the overwhelming majority of the bill for their drugs by sending cash to Washington. Many governors said the complex and cumbersome federal formula means they would pay more money than before.

Texas and New Hampshire have put aside the money they would send to the federal government to cover those drug benefits until the dispute is resolved. Republican Rick Perry of Texas wrote a letter to fellow governors arguing they should work together to change the federal policy.