You Will Be Stimulated!

Why the states should refuse the stimulus

Stimulus sweeps the land like a plague, with the American Recovery and Reinvestment Act pushing a crushing juggernaut of $787 billion in enforced federal joy to help with state obligations ranging from welfare to unemployment to education to building guard rails on highways.

While not exactly forming a substantial breakwater to these flooding waves of cash, a few conservative voices have at least drawn some attention by standing athwart the next decade's federal debt, shouting, "Hey, maybe we'll just take some of it."

The leading anti-stimulus Scrooge is Republican Gov. Mark Sanford of South Carolina, who petitioned the White House to aim $700 million of stimulus money toward debt reduction rather than spending. He was told no, and earlier this week tried to readjust and refocus his intentions. He now hopes to apply $577 million specifically to education debt. He noted:

This would immediately free up over $162 million in debt service in the first two years and save roughly $125 million in interest payments over the next 13 years, which could then be directed towards other educational purposes—just as paying off a mortgage early frees up the typical monthly payment for other uses.

Obviously, such talk is rather unpopular in the midst of this, the worst economic crisis since last month. For his part, Sanford is accused of putting political ambitions before his state's 10 percent unemployment rate. He's merely preening, critics say, before the rump of the GOP's small-government faithful in preparation for a 2012 presidential run. Lots of South Carolina's citizens and legislators think Sanford's out of his gourd, that he's robbing the state of its birthright for a mess of  message about fiscal probity. Luckily for them, the stimulus bill actually empowers the legislature to override his intentions. The bill contains a provision, added ironically by South Carolina's own Democratic Rep. James Clyburn, in subsection 1607(b) that holds:

If funds provided to any State in any division of this Act are not accepted for use by the Governor, then acceptance by the State legislature, by means of the adoption of a concurrent resolution, shall be sufficient to provide funding to such State.

But that might well conflict with the spending provisions of several state constitutions, prompting a few thinkers to put forward charming attempts to apply retrograde 10th Amendment thinking to the stimulus bill. As Chapman University law professor Ronald Rotunda suggested in a Chicago Tribune op-ed, it's perfectly clear Congress has no legitimate constitutional authority to thusly override state constitutions. Subsection 1607(b), he says, would surely fall to a legal challenge, were one to come up. Rotunda also says Congress was in such a hurry to pass this bill, it appears to have neglected to include a standard "severability" clause that would allow the rest of the bill to stand if that portion were struck down. While it's undoubtedly an eccentric thing to bring up—constitutional limits on congressional power are so 19th century—Rotunda's theory was roughly backed up by a Congressional Research Service report issued this week. (That these arguments will damage the stimulus package in the end seems quite unlikely, of course.)

In addition to Sanford, Texas Gov. Rick Perry, Louisiana rising star—and potential Sanford opponent in a fantasized 2012—Gov. Bobby Jindal, Mississippi Gov. Haley Barbour, and Alabama Gov. Bob Riley have all announced their intentions to refuse part of the stimulus money. Joining them this week was presumptive 2012 next-in-line, Alaska Gov. Sarah Palin.

Perry and Riley are particularly bothered by certain strings attached to the unemployment benefit money. The stimulus bill requires the states to extend unemployment benefits by various means, including extensions to those seeking only part-time employment, those who quit jobs for family reasons, and those who had otherwise exhausted their statutory claim on the benefits.

Buttressing Perry's desire not to get trapped in new federal unemployment demands, this analysis from the Texas Public Policy Foundation finds, for one example, that a stimulus-mandated change in the base period for unemployment benefits would cost Texas $212 million over five years—and that's in order to get $185 million from the feds now. In general, stimulus-wary governors fear that the stimulus will lock them into future costs that will weigh on state budgets long after the stimulus money is gone. That's a legitimate worry. As a new study from the Rockefeller Institute notes,

even under the most optimistic of scenarios, state tax collections will not return to pre-recession levels until well after the 2011-2012 fiscal year, when the bulk of new assistance for states will end. At that time, states will once again face severe budget gaps…. When most of the stimulus provisions expire…states could face budget gaps that range from four to six percent of general expenditures—a nationwide total of $70 billion to more than $100 billion.

Of course, most states—including even those whose governors are in supposed revolt—are more than happy to take the money. They're apparently heedless of the problems down the road, pleading that they've been whacked in the head by an unpredictable fiscal emergency that's completely outside of their control. But as Chris Edwards explains, the states are far from blameless when it comes to budget problems, and far from starved:

Total state and local tax revenues increased 8.4 percent in 2004, 8.9 percent in 2005, 6.6 percent in 2006, and 4.9 percent in 2007. Data for the first quarter of 2008 show that tax revenues are up 3.2 percent over the first quarter of 2007…[while] Spending across the 50 states increased 6.5 percent in 2005, 8.7 percent in 2006, 9.3 percent in 2007, and 5.1 percent in 2008. Spending growth is projected to slow to 1 percent for 2009, but that is certainly no crisis after the orgy of budget expansion in recent years.

The phenomenon of some GOP governors talking the anti-stimulus talk (even walking the anti-stimulus walk, at least as far as their legislatures will allow them to) is encouraging in its own small way. It's refreshing to see that some degree of federalism—backed up with actual thinking about tomorrow's consequences for today's actions—is still alive somewhere on the American political scene.

Sure, looking at the wider picture makes it all seem like just political theater. As Christopher Beam noted in The Washington Post, the various governors are presenting weak strategies almost certainly bound to be defeated by their legislatures, combined with incoherent theories that make it unclear why only portions of the stimulus should be rejected. But it is good, at least, that some politicians think there is a public out there ready to be attracted to such a stance.

Yes, it's heartening to believe that every small sign of life for federalism helps, even if it's only a little. But in the face of the stimulus juggernaut, the sad conclusion is that this minor, though encouraging, trend isn't likely to do even a small bit of good.

Senior Editor Brian Doherty is author of Radicals for Capitalism (PublicAffairs) and Gun Control on Trial (Cato Institute).