For State Governors, Stimulus Money May Have Too Many Strings Attached

Beware of strangers bearing gifts. A few of the nation’s governors are taking that old saw to heart. They’re having second thoughts about how much of the fiscal stimulus pie they want to accept after noticing some of the strings attached.

If you’re running a state in this economy it’s hard to turn down what looks like free money. The New York Times reports that six governors are thinking of doing just that. The problem? Some of the money is targeted to programs that potentially lock the states into increased benefits.

Gov. Bobby Jindal of Louisiana announced Friday that he would reject a portion of expanded unemployment benefits that would eventually require the state to raise taxes on businesses.

And the governors of Alaska, Idaho, Mississippi, South Carolina and Texas have said their states may not want to meet the conditions that accompany the money or expand programs that will have to be paid for by the state once the stimulus money runs out.

“You may get yourself out of a temporary budget hole, but create another budget hole in the next 24 months,” said Gov. Mark Sanford of South Carolina, who like Mr. Jindal and Gov. Rick Perry of Texas is considered a potential candidate for the Republican presidential nomination in 2012.

Much of the reticence seems to come from the structure surrounding increased unemployment benefits, though one of the governors, C. L. Otter of Idaho, was less than pleased that the transportation segment of the bill requires the expenditure of 3% of the money on “transportation enhancement” He said that, “I never imagined that Congress would tell the state of Idaho that they had to spend $5.5 million on bike paths or pedestrian lanes.”

Given the complexity of the legislation and the speed with which it was rushed through, the governors are urging other states to study it closely to determine the long-term impacts to their budgets. The question might well be asked as to how many will step up and level with their constituents about exactly what future commitments are being taken on by acceptance of the money. Given the nature of the crisis in many states, the impulse could well be to just take the money and keep quiet about the consequences.

Reviewing Arizona’s share of the loot and where it has to go to, I was struck by some of the same things that seem to be troubling the governors. Arizona has a big budget gap to fill and has been cutting spending painfully to fill that hole. The bill in many respects will require some of those cuts to be rolled back in order to qualify for federal government assistance. In the short run that’s probably acceptable but the money only flows through 2010.

There are a couple of problems that I see.

First, there’s no guarantee that life is going to be all sweetness and light by 2011. Nationally that might work, but the recovery will certainly be uneven. Arizona may well lag given its dependence on housing and construction so if we are still in the soup a couple of years from now and the rest of the economy is looking up, it’s doubtful that further dollars will be forthcoming. Saddling the state with increased benefits it will have to fund itself at some point is risky.

Second, you are probably permanently inculcating the higher benefits in the budget. Once you promise a benefit, it is devilishly hard to take it away. The price for help at this point in time might well be a significantly higher baseline spending level a couple of years from now.

Isn’t there another old saw about looking a gift horse in the mouth? It might be wise to do so. Nothing is free, and that applies doubly when the gift giver is the federal government.

Comments

[HiSpeed]

States need to balance their budgets - just like the rest of us "normal" households!

Bailouts only encourage more fiscal irresponsibility - does every state want to end up like the People's Socialist Republic of California?

Make CUTS in your budgets!

2009 Feb 21 04:51 PM

[k9s-4-k8]

Wow! Unfortunately, I live in California and our legislators are dumb as dirt and have already spent the money they expect to come in. That means we will continue on in our tradition of being the most anti-business state in the union. Our legislators have the mentality that if business leaves the state, they then need to double up on the taxes for the remaining business so as to meet expected shortfalls in revenue.

2009 Feb 21 05:07 PM

[Allen Charles]

It appears the SOUTHERN states that are continuing to ponder the rejection of these funds are still fighting the CIVIL WAR. My beloved SOUTH always lags behind the other parts of the country in about everything. When Ike proposed building the Interstate Hwy system, the SOUTH was going to vote it down until Lyndon Johnson suggested RENAMING it as a DEFENSE item and suddenly all the southern Congressman and Senators voted for it. This was the greatest boon to the economy maybe in history allow a faster transportation parts and of manufactured products all o0ver the country. It costs a lot but has paid for itself many times over.

2009 Feb 21 05:31 PM

[zermux]

Many of the banks who took TARP money are now regretting it due to the retroactive changes that are now taking place. It would not suprise me too much if any state who takes federal "stimulus" money is later told how to run their state. This economy is unlikely to turn around anytime soon (maybe by 2018) and anyone who shakes the hand of the "I am from the Federal Government and I am here to help you" will come to regret it later.

Now is the time for the states to spend their money wisely and try and attract taxpayers (business and individuals) into their states.

2009 Feb 21 09:31 PM

[john s. gordon]

allen c. - you are right in that some of the reluctant dixie state governors are in charge of the states that have participated in the 'race to the bottom' insofar as benefits to their citizens.

however 'ahnold' has said he will accept any unspent unaccepted cash from other states.

maybe the thing to do is accept now, ask for relief later/

you are right, the eisenhower interstate highway system was sold to the u.s public as a defense measure, to move tanks around etc. now that we have it we can use it to transport high-level waste from all over the country to yucca mtn.
> jack

2009 Feb 22 09:46 AM

[fireball]

change= reward stupidity, laziness, incompetence, excess.
punish-success
what right does california or any other state have to federal taxes paid by citizens of the other 49? if i don't live within my means i get punished.
"some animals are more equal than others."

2009 Feb 22 10:31 AM

[CLH]

The highway bill was needed. We had few good roads. The present pork bill is just spending money for things not needed.

Good article Tom. Money is never given away with out strings. Watch out for the union strings, which will double and triple the cost.

2009 Feb 22 11:37 AM

[If U Say So]

On Feb 22 10:31 AM fireball wrote:

> change= reward stupidity, laziness, incompetence, excess.
> punish-success
> what right does california or any other state have to federal taxes
> paid by citizens of the other 49? if i don't live within my means
> i get punished.
> "some animals are more equal than others."

I agree but with one caveat. As stupid as California legislators are, the fact is California as a large state pays a far larger percent of overall Federal revenues collected while getting a much smaller percent of Federal dollars doled out to states. Its always been that way. The smaller, poorer states of the union reap the benefits. If we were to apply your thinking into budgeting, money doled out to any one state should match that percent of money taken in from that state by the Federal government. But that won't happen. Every state gets two Senators regardless of the size of the state's population. Rhode Island, Wyoming, and Mississippi have as much representation in the Senate as California, Texas, and Florida.

2009 Feb 23 03:28 PM

[fireball]

if u say so
agreement. the senators were supposed to be appointed by their own state houses to protect that states rights. now they are just more pork hunting politicians.
the federalis were never meant to be such bloated life sucking parasites. the heavy taxation is just to taxing on the productive.

2009 Feb 23 11:42 PM

[jmmx]

@ fireball

1- As has been pointed out, the smaller, poorer states receive a large tax influx than they pay into the system. So - please fix that.

2- The problem with comments such as yours sir, is that they complain about the taxes but never say what should be cut. I think we should start with the military. We spend trillions of dollars and get nothing positive in return. At least if a bridge is repaired you can continue to drive over it. I have no desire to drive over a bomb crater in Iraq.

On Feb 22 10:31 AM fireball wrote:

> what right does california or any other state have to federal taxes
> paid by citizens of the other 49? if i don't live within my means
> i get punished.

2009 Feb 24 08:16 PM

[jmmx]

@ fireball again

Here we DO agree. The Washington politicians are under the thumb of the big lobbyists and corporate campaign donors. It is a kind of reverse socialism - instead of government controlling industry, industry controls the government. Not a big difference really.

If you believe in spending within our means, than you should vote Democrat the National Deficit has ballooned under all Republican administrations since Ronald Reagan - who tripled the debt.

See:
www.lafn.org/politics/...

Yes - the this administration will increase it due to economic crisis he is inheriting from the Bush years. So, what was Bush's excuse for more than doubling the debt? Let's just get our facts straight.


On Feb 23 11:42 PM fireball wrote:

> if u say so
> agreement. the senators were supposed to be appointed by their own
> state houses to protect that states rights. now they are just more
> pork hunting politicians.
> the federalis were never meant to be such bloated life sucking parasites.
> the heavy taxation is just to taxing on the productive.

2009 Feb 24 08:23 PM