Governors Cast A Wary Eye On Fiscal Stimulus Money

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 stings 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 Sanfordof 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.

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