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Entries by Burton Folsom

Saturday, February 28, 2009

Refusing "Stimulus" Funds: Then and Now

With the flood of spending coming from the stimulus bill, several governors have held firm to principle. They don't want to take the federal money if federal strings are attached. In particular, they are reluctant to take, for example, the new money for Head Start and child care subsidies if it means the states have to pick up the programs when the stimulus money runs out. As Governor Mark Sanford of South Carolina says, "There's no way politically we're going to be able to push people out of the program in two years when the federal money runs out." In a similar manner, states will receive $80 billion in Medicaid funds but these funds run dry in 2011. Will the states have to raise taxes on its citizens for Medicaid after 2011?

This question of whether or not to take federal funds also perplexed some of the governors in the 1930s during the massive federal spending of the Hoover and Roosevelt presidencies. For example, in 1932, under the Emergency Relief and Construction Act, welfare was first made a federal function. Before that, states and private charities provided one on one relief service for hungry and jobless people in their communities. With the promise of federal funds, the governor of Illinois (and the mayor of Chicago) declared urgent and dramatic need. In doing so,they secured over $55 million of this fund--more than New York, California, and Texas combined.