The political debate surrounding state budgets and the ARRA

If the budgetary situation of the US were not already complicated enough, we must still add another facet to our description of it: the political side. While there are many political aspects to the budget crisis, whether it be public pressure to maintain spending and keep taxes low or federal debate over the amount and nature of the fiscal stimulus, we will place our focus on the political response at the state level to the fiscal stimulus, and further on we will examine the fiscal policy responses of the state governors and budget officers to the crisis.

In the senate, the final ARRA legislation won all of the Democratic votes and three Senate Republican votes; but no republican lawmakers in the House supported the bill and seven House Democrats voted against the bill.[22] But it is the dialogue of the State governors with their constituents through press releases and their responses to the Stimulus bill that has garnered the most attention. Remarkably, four republican governors went against their party and supported the Obama Stimulus plan, signing a letter with 14 Democratic Governors lauding the ARRA. These were governors Arnold Schwarzenegger (CA), Charlie Crist (FL), Jim Douglas (VT) and Jodi Rell (CT).[23] It is not surprising that all four Republican Governors who spoke out in favour of the funds find themselves in the top quartile of states ranked by predicted budget shortfalls for 2009-2010, ranging from a 58.2% budget gap in California to a 22,8% budget gap for Florida. (see table 1.2 below). Other Republican Governors expressed reservations about the funds, particularly that the temporary federal grants will create new and expanded state programs and once federal funding ends, states will be responsible for funding them in the future.[24] It was the expansion of unemployment benefits requirement attached to the money issued for unemployment benefits that caused many Republican Governors including Sarah Palin (AK), Jim Gibbons (NV), Mark Sanford (SC), Bobby Jindal (LA), Rick Perry (TX), Hayley Barbour (MS), Tim Pawlenty (MN), Bob Riley (AL), Sonny Perdue (GA), Mitch Daniels (ID) and Butcher Otter (IN) to hesitate in accepting this money.[25][26] Even a Democratic Governor, Phil Bredesen (TN) expressed concern over the expansion of employment benefits portion of the ARRA.[27] Virgina’s legislature also voted to reject the unemployment money.[28]

The unemployment insurance portion of the ARRA expands unemployment benefits by 25$ a week for recipients and also contains about $7 billion dollars in “incentive payments” for states to modernize certain unemployment compensation laws permanently. Modernization includes the enactment of an ‘alternative base period’ to ensure the last completed quarter of a worker’s employment is counted when determining eligibility requirements and the enactment of at least two of the following provisions; allowing part-time workers to seek part-time work; permit voluntary separations from work for compelling family reasons, which must include (i) domestic violence, (ii) illness or disability of an immediate family member, and (iii) the need to accompany a spouse who is relocating for employment; provide extended compensation to recipients in qualifying training programs for high demand occupations; provide dependents allowances to UC recipients with dependents.[29] These provisions, in most cases, permanently expand unemployment coverage, which was the primary concern of the governors, however, out of necessity and a belief that it is the responsible thing to do to accept the funds, most governors who questioned the unemployment portion of the funds now have accepted it.

It still remains unclear, however, as to what led specific Governors to oppose Stimulus funds while others were in praise of them. South Carolina, for example has seen its unemployment rate rise by 5.6 percentage points over the last year, and faced one of the most severe budget shortfalls in 2009 (see Table 1.2 below) and yet governor Mark Sanford was the most vocal advocate against the stimulus money. Sarah Palin (AK) also did not want to accept a large portion of the funds for Alaska even though Alaska faces a 30% budget gap in FY 2010 (again, see table1. 2). Some claim[30] that political aspirations in the GOP and election hopes for 2012 has spurred some of the opposition, as it could very well have been the case for Sarah Palin and Mark Sanford. Moreover, Rick Perry (TX), in a state also facing large increases in unemployment, is said to have motivations tied to his anticipated tight race for re-election in 2010 for rejecting the Stimulus.[31] But given the fact that a Democratic Governor as well as the Virginia Legislature rejected the funds[32], political motivations cannot be entirely the cause for the opposition. Lower pressure on unemployment benefits also cannot entirely explain the resistance either, because many of these states, including South Carolina Alabama, Indiana and Tennessee have much greater than average changes in unemployment over the last year (see Table 1.2 below). Indeed some Governors may very well believe that the expansion of coverage is irresponsible and that fiscal sustainability is more important than cushioning the economic safety net, but this is a hard line to take given the severity of the downturn, as Sarah Palin, Mark Sanford and soon, Rick Perry with all of the controversy over his rejecting the funds and his current election race[33], will have learned. And so, while political motivations and concern for fiscal responsibility may well be the most logical explanation as to what motivated the opposition to parts of the Stimulus, in most cases, mere necessity has required virtually all states to back off in their opposition of the funds.

Table 1.2

Budget shortfalls by State for FY 2009 (July 1^st 2008-2009 in most states) and FY2010 as percentage of total budget and unemployment change from June 2008 to 2009 by percentage point change, by U.S. states ranked by increasing 2010 shortfall. (lightest to darkest shades of grey show the fourth of states with the lowest to highest shortfalls and unemployment changes)

Source: Center on Budget and Policy Priorities and the Bureau of Labour Statistics

Date: 2016-04-22; view: 475