About-Face: More States Accept Stimulus Funds

Remember all those governors who objected to taking $7 billion in stimulus money set aside to help the unemployed? Many of them changed their minds. Now, more than half the states are getting the federal stimulus.

As the down economy drags on, some of the most conservative states have updated their laws so they, too, could get their share. Others are still holding out.

Several southern states were among the first to say they did not want to take federal stimulus funds to help the unemployed. Republican governors from Georgia to Louisiana, Texas to South Carolina were outspoken opponents of expanding unemployment benefits.

Gov. Mark Sanford of South Carolina in 2009 said, "I was against the stimulus. I've consistently stood against the stimulus. If you take all this stimulus money and you spend it all, over the long run there will be less economic activity in South Carolina rather than more."

But last week, without much fanfare, the Labor Department released $97 million to South Carolina after state legislators modernized the unemployment insurance program and Sanford signed the bill into law.

"When some of the states were talking about not taking the money, it was more political than anything else," says Jon Shure of the Washington D.C.-based Center on Budget and Policy Priorities.

"People put aside some of their political distinctions and ideological considerations and said, 'This is money we need. It's bad for the economy if we don't take it,' " Shure adds.

With the unemployment rate at 9.5 percent and more than 14 million Americans out of work, state officials are under pressure to take the federal help.

Maurice Emsellem with the National Employment Law Project says seven states and the District of Columbia are among those that made changes this year. They include allowing part-time, low-wage workers to qualify for unemployment benefits.

"The real beauty of this legislation is that it's a win for workers, and it's a win for employers in many states, and it's a win for the state unemployment funds that are having a hard time right now," Emsellem says. "Because when they qualify for this money, they get a big chunk of money all at once, right up front."

On average, Emsellem says, states get enough money to pay their expanded benefits for seven years. But that's the problem for some states.

Some southern governors, including Gov. Rick Perry in Texas, continue to oppose any changes. Perry has turned down more than a half-billion dollars for his state.

"Gov. Perry was very clear that he would not accept any recovery act funds that require Texas change its laws," says Ann Hatchitt, a spokeswoman for the Texas Workforce Commission.

"Although half a billion dollars is a large amount of money, it would only last approximately five to seven years," Hatchitt says. "Then the laws would still be in place, the pool of people that qualify for unemployment insurance would be expanded, and those expenses would remain."

Some state officials argue that taxes will eventually have to go up to pay for the increase. Others object to what they say are orders from the federal government.

Tad DeHaven, a budget analyst with the fiscally conservative Cato Institute in Washington, D.C., says many don't want to accept the restrictions that come with money.

"Unemployment benefits are paid by taxes," DeHaven says. "So you have a competitiveness issue, and I think some of these governors resent the top-down approach from Washington because it inhibits their ability to differentiate versus their neighbors in the rest of the 49 states."

According to the National Employment Law Project, 28 states passed overhauls last year, and nearly a dozen states considered changing their laws this year. Several are still debating the issue. They have until next August to make the changes and qualify for the stimulus dollars.

But some are likely to hold their ground. Last week, several Republican governors again balked at the latest federal stimulus package intended to help states pay for Medicaid and prevent more teacher layoffs.

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