Some states may shun stimulus funds

At least six governors have said they may refuse money, but will they face a backlash?

Al Grillo/AP
Alaska Gov. Sarah Palin and Lt. Gov. Sean Parnell in Wasilla, Alaska on Friday. Palin is one of a handful of governors who have said they may join Idaho Gov. Butch Otter in turning down federal stimulus funds.

On orders from his boss, Idaho chief legal counsel David Hensley spent three days poring through the fine print of the gargantuan stimulus legislation, returning bleary-eyed to Boise with what looked like a college freshman’s dog-eared copy of Tolstoy’s “War and Peace.”

His boss, the cowboy hat-wearing Gov. Butch Otter, is one of at least half a dozen Republican state executives who have said they may reject some, even all, of the money their states would get under a stimulus package expected to enlarge the government’s slice of gross domestic product and slow, if not reverse, the economic downturn.

Critics such as Rep. Jim Clyburn of South Carolina say the Republican resistance is a political, even racist, ploy to withhold critical help from the nation’s poorest and most hard-hit communities. But with Americans – even Republicans – split on support for the bill, there could also be fiscal wisdom in cautiously approaching a spending package that could weaken states’ rights, put state taxpayers on the hook to fill future funding gaps, and stymie local innovation to turn the economy around.

“We’re concerned that we’re just going to be doling out million dollar hugs,” says Jon Hanian, Governor Otter’s press secretary. “It really comes down to the proper role of government, and that is a soul-searching question we’re engaged in here in Idaho right now.”

Alaska Gov. Sarah Palin, Mississippi Gov. Haley Barbour, Louisiana Gov. Bobby Jindal, South Carolina Gov. Mark Sanford, and Texas Gov. Rick Perry have joined Otter’s revolt.

Indiana Gov. Mitch Daniels has also raised concerns about future state obligations especially for education, welfare, and healthcare spending, which make up the bulk of the $787 billion package.

“Some school systems will see a gusher of money the like of which no one has seen before,” said Governor Daniels at a press conference last week. “When federal funds stop coming, there will not be any way to replace all of that.”

The rift in the GOP became evident on “Meet the Press” Sunday as Governor Jindal faced off with Gov. Charlie Crist of Florida, who welcomed the package faster than he could say “Sunshine State.” “We are at a time of need and to do nothing is not acceptable,” said Governor Crist. “I’ve looked into the eyes of people [in unemployment lines] and I understand the challenge.”

But Jindal, who called the stimulus debate “a great opportunity” to offer conservative-based solutions, countered, “We should be unafraid to stand up on principles and point out alternative solutions.”

The topic is also likely to overshadow the Republican Governors Association conference that begins Monday in Washington. Facing a massive budget crisis, California Gov. Arnold Schwarzenegger is one of the nation’s 22 GOP governors who has said he is quite happy to take the money.

In a study released late last week, the Rockefeller Institute found that states are wise to take the money, but should plan judiciously. By the time the money runs out in 2011-12, conservative estimates show states could face budget gaps equaling 6 percent of general revenues, or about $100 billion nationwide. Spending cuts or tax hikes would be inevitable, the report concluded.

“This stimulus gives states some time, but it doesn’t make the problem go away,” says Donald Boyd, who wrote the report. “There is a risk of losing discipline, [but] in the end, I’d be very surprised to see a state reject the money. It’s fine to take a stand, but retreat may look pretty good.”

Rebel Republicans say that the focus of the stimulus package on expanding the government payroll may hobble the ability of states to target local and regional problems that have contributed to the downturn.

Mississippi’s Governor Barbour objects to a provision that extends unemployment benefits to people who have turned down full-time employment. Similarly, South Carolina’s Governor Sanford thinks extending unemployment benefits to part-time workers will bankrupt the state’s unemployment trust.

In Idaho, Governor Otter would rather have seen money go toward the federal government paying more so-called “payment in lieu of taxes” to local communities for the huge chunks of federally owned lands in the West.

“This shows that states like Idaho that have creative ideas ... are being stymied by an uncreative, old-ideas bill,” says Scott Ward, president of the Republican State Leadership Committee in Washington.

The rebel governors may be playing to simmering taxpayer discontent over the size and obligations of the package, evident in anti-tax protests across the country, including one that greeted President Obama recently in Denver. Politically, the GOP has found some success in painting the package as an overblown spending bill. Support for the package has waned in recent days, polls show.

“These are people jockeying for the next round of president, vice president and cabinet for Republican administrations.... [T]hey’ve understood the symbolic importance of saying no to what appears to be expanding federal government and deficits and social programs that their constituents, frankly, wouldn’t necessarily care for,” says Pearson Cross, a political science professor at the University of Louisiana in Lafayette. At the same time, Professor Cross says, “It’s a bit disingenuous to say, ‘Well, we may not take it,’ when in fact we need it desperately.”

Expecting just such a revolt from Southern governors who may resist expanding welfare for minorities, South Carolina Congressman Jim Clyburn fought for an amendment that would give state legislatures, not governors, the final say on receipts.

“The only strings attached to this money is if you have a community that for the last 30 years has had persistent poverty rates ... then you must direct 10 percent of this money to those communities,” says Rep. Clyburn. “If you don’t want this pot of money because that string is attached, what am I to conclude from that?”

The underlying cause for the resistance has to do with state sovereignty, says Byron Schlomach at the conservative Goldwater Institute in Phoenix. Will a short-term federal government intervention weaken states’ rights by making them more financially beholden to Washington?

That’s an issue that is particularly relevant as the revolt is largely coming from states such as Louisiana, Mississippi, and Alaska, whose residents currently receive some of the highest shares of federal subsidies in the country. These states, argues Mr. Schlomach, know the price that comes with federal largess. “We’re giving up our sovereignty and putting the federal government even more in the driver’s seat,” he says.

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