Rejecting Stimulus Funds: Pros and Cons

With a record 12.5 million Americans on the unemployment line and state budgets bleeding billions of dollars, it might seem politically suicidal that some Republican governors want to walk away from their states’ full share of the federal economic stimulus package.

South Carolina’s Mark Sanford is perhaps the most conspicuous member of a group that also includes Govs. Bob Riley of Alabama, Sarah Palin of Alaska, C.L. “Butch” Otter of Idaho, Tim Pawlenty of Minnesota, Haley Barbour of Mississippi and Bobby Jindal of Louisiana.

Sanford, whose state has one of the fastest growing unemployment rates in the country, lobbied against the stimulus package and is refusing to accept $700 million of the $8 billion in benefits South Carolina is eligible to collect. The money would help fund schools and public safety.

“If we’re going to spend money we don’t have at the federal level, it becomes all the more important that our state balance sheet is in good order – particularly if this is a protracted downturn. But many people do not realize that the stimulus money runs out in 24 months – at which point South Carolina will be forced to find a new source of funding to sustain the new level of spending, or to make sharp cuts,” the governor said in an op ed article published in the March 21-22 edition of the Wall Street Journal.

Political analysts say the actions of Sanford and others are meant to define them politically. They say some are sticking to long-standing views of limited government and lower taxes, and that others, with an eye on future elections, are burnishing images as fiscal conservatives at a time when the GOP is searching for new national leadership.

“As the Republican Party tries to figure out where it goes in the future given losses in the 2006 midterm elections and the 2008 presidential election, Gov. Sanford offers a ship for the party to stand on in terms of sticking to its core Republican values and principles,” said Bruce Ransom, a political science professor at Clemson University.

Other experts warn that refusing stimulus money could backfire with voters suffering from the economic downturn – and the legislators who represent them. Indeed, many of Sanford’s fellow Republicans in the GOP-controlled South Carolina House and Senate want to accept the money. They plan to draft two state budgets – one with full stimulus spending and one without it. Some believe the issue will wind up in court.

A recent report raises questions whether the U.S. Congress overstepped its bounds by allowing state legislatures to essentially override a governor’s rejection of federal stimulus dollars and apply for it on their own. “Although the language … is largely ambiguous, it does not appear likely that it was intended to significantly reallocate powers between a state legislature and a state executive branch,” the Congressional Research Service said in a nine-page legal study.

South Carolina’s The State newspaper quoted Republican state Sen. Hugh Leatherman as saying Sanford was inviting chaos. “Overriding your decision could lead to chaos in the courts. Failure to override your decision most assuredly would lead to chaos in the budget,” the Florence businessman said in a letter to the governor.

In Texas, Gov. Rick Perry’s decision to reject $555 million in federal stimulus money that would expand state jobless benefits to part-time workers is becoming a Perry re-election campaign issue. U.S. Sen. Kay Bailey Hutchinson, who is expected to challenge the governor’s re-nomination in the 2010 Republican primary, disapproves of his stance.

“A leader would be taking time to look at all aspects and coming up with a better solution,” she said, according to The Dallas Morning News. “I would hope he (Perry) is looking for innovative ways not to dock the taxpayers of Texas with $555 million turned down.”

Political pressure has forced one Republican critic of the economic stimulus package into retreat. Nevada Gov. Jim Gibbons, beleaguered by political scandals and the largest budget deficit of any state, exceeding 38 percent of its general fund budget, initially refused federal unemployment money, citing the strings attached.

While Gibbons backed down March 25 and accepted the money, the debate “might actually help [Gibbons] with the most conservative base,” said Eric Herzik, chair, of the political science department at the University of Nevada in Reno.

“This populist, anti-Washington, anti-big government works well in Nevada,” Herzik said.