Betray Your Principles, Get a Check!: Why State Governors are Turning Down Federal Cash

COMMENTARY Budget and Spending

Betray Your Principles, Get a Check!: Why State Governors are Turning Down Federal Cash

Feb 26th, 2009 5 min read

Former Distinguished Fellow

Michael is a former Distinguished Fellow at The Heritage Foundation.

(B)(i) If the Secretary of Labor finds that the State law provisions (disregarding any State law provisions which are not then currently in effect as permanent law or which are subject to discontinuation) meet the requirements of paragraph (2) or (3), as the case may be, the Secretary of Labor shall thereupon make a certification to that effect to the Secretary of the Treasury, together with a certification as to the amount of the incentive payment to be transferred to the State account pursuant to that finding.

-- American Recovery and Reinvestment Act, Division B, Title II, Section 2003 (emphasis added)

This arcane provision appears about three-quarters of the way through the new stimulus law. It is part of the title that doles out $7 billion in additional unemployment insurance (UI) benefits. The italicized portion has sparked an intense debate over whether the nation's 50 governors should accept this new funding. With some federal giveaways, the question doesn't arise: Why turn down free money? But in this case, "free" money could end up costing a lot.

Louisiana governor Bobby Jindal started the firestorm last week when he announced that Louisiana would reject its share of the new unemployment-insurance funding. His rationale: The parenthetical phrase would require the Pelican State to (1) jettison longstanding policies about who can and cannot receive UI benefits and (2) increase the payroll-tax burden on employers.

Jindal's reservations elicited catcalls from befuddled big-government governors as well as one of his own state's senators, Democrat Mary Landrieu. But when other conservative governors echoed Jindal's concerns, a gubernatorial tea party seemed in the offing.

On Sunday's Meet the Press, Jindal explained his rejection of the bill's UI funds this way:

The $100 million we turned down was temporary federal dollars that would require us to change our unemployment laws. That would've actually raised taxes on Louisiana businesses. We as a state would've been responsible for paying for those benefits after the federal money disappeared.

Jindal went on to echo former president Reagan by adding:

So many of these things that are called temporary programs end up being permanent government programs. But this one's crystal clear, black and white letter law. The federal stimulus bill says it has to be a permanent change in state law if you take this state money. And so within three years the federal money's gone, we've got now a permanent change in our laws, we have to pay for it, our businesses pay for it. I don't think it makes sense to be raising taxes on Louisiana businesses during these economically challenging times.

It makes no sense, he concluded, "for us to take temporary federal dollars and create permanent state obligations."

A neighboring governor, Mississippi's Haley Barbour, detailed what the federal strings tied to these funds would mean to his state. He characterized the conditions as "welfare state 3.0" in a February 6 interview with CNBC's Chris Matthews:

MATTHEWS: [W]hat about ... your House speaker down there? He says you need the money. He can't -- he says he's incredulous ... that you would stand against getting this money in the coffers of the state treasury.

BARBOUR: ... Well, this bill, according to the advocates for the bill, would let Mississippi have $54 million of additional money for unemployment. The only problem is, when you read the details, we get $3.9 million of that for what we do now. And to get the other $50 million, we have to expand unemployment to let people collect unemployment that have never been eligible in our -- in our state, including people who aren't willing to take a full-time job.

Now, there's way too much of that in this bill, social policy, to the point it -- it's kind of welfare state 3.0.

MATTHEWS: What do you mean by -- I thought you had to be able to -- when you go to unemployment, you go down to the desk, you tell them what you can do, and they find a job for you. You are saying that that's not a requirement under this new system?

BARBOUR: That's right. In Mississippi today, if ... you're unemployed, we try to help you find a job. Until you can find a job, get offered a job, we pay you unemployment. But you have to be willing to accept a full-time job in order to be paid unemployment.

This law, this bill, the stimulus package, would change that, and would require Mississippi, to get this $50 million, to change our law.

Now, Chris, that means that, in a year-and-a-half or two years, when the federal money runs out, however long it is, then my employers are about to get a $10 million or $15 million tax increase to give unemployment to people that Mississippi doesn't think you should give unemployment to, but is going to be crammed down our throat by Washington.

MATTHEWS: So, this extra spurt of money, this stimulus money that would be coming down to Jackson, Mississippi, for Mississippi and the other states, you are saying it's going to bring with it the federal hold on you guys, tell you how to do certain things that the government in Washington doesn't do now?

BARBOUR: What I'm saying is, we need to be very careful to make sure we understand what strings are attached.


The "federal hold" to which Matthews refers is actually several provisions taken directly from a separate bill authored by liberal Rep. Jim McDermott (D., Wash.). His Unemployment Insurance Modernization Act is an undisguised effort to force states to loosen dramatically their eligibility requirements for unemployment insurance (UI) payments in exchange for more federal cash. States, for example, would have to agree to make UI benefits available to individuals:

  • who leave their jobs for a "compelling family reason," including (undefined) illnesses or disabilities of immediate family members or moving to "a place from which it is impractical ... to commute" because a spouse accepts a new job; and
  • who seek only part-time work (most states require recipients to look for full-time positions) or refuse to pursue job leads because they are enrolled in job-training programs (most states bar this practice).

Unemployment-insurance systems vary widely from state to state and reflect the differing cultural mores that prevail across the country. Some states place a high priority on personal responsibility and work effort, and maintain systems that make benefits harder to obtain; others simply want to compensate unemployed workers for being unemployed, with no questions asked. The stimulus bill is the latest example of Washington using its seemingly unlimited resources to cram dependency-inducing and work-discouraging requirements down the throats of states whose leaders place a much higher value on work and personal responsibility.

Go for it, Bobby, Haley, and any other courageous governors who dare stand up to imperial Washington.

Mike Franc is Vice President for Government Relations at The Heritage Foundation.

First Appeared in National Review Online