WASHINGTON, D.C.: Hoping to provide a nudge to budget negotiations stalled over the future of Medicaid and the federal welfare program, the National Governors Association Tuesday recommended changes in both programs. The proposals are designed to define a middle ground between Congressional Republicans, who would simply fund the programs through block grants to states, and Democrats who want to maintain the federal-state partnership. Under the governors plan, Medicaid funding to states would be based on actual need, but any state could tap into a federal emergency fund whenever it needed extra help. The governors also proposed a welfare plan that would give extra incentive money to states for reducing out-of-wedlock births, and allow them the option of cutting benefits to children born to a family already on welfare. Unlike the GOP Congressional plan, the governors' plan includes some $4 billion in additional funding for children's welfare programs. "It's the break that they're looking for and hopefully we can convince our colleagues of the importance of passing it," said Wisconsin Governor Tommy Thompson, the NGA's Republican chairman. Visiting the NGA conference, President Clinton characterized the plan as "a good first step."