Governors unlikely to turn down U.S. stimulus funds

By Lisa Lambert

WASHINGTON (Reuters) - Even Republican governors who have said they will reject some of Washington's stimulus money will end up taking much of the funding, the leader of the National Governors' Association said on Saturday.

"In the end ... most of the governors will accept most of the money and use it for the benefit of their citizens," said Pennsylvania's Democratic governor, Edward Rendell, at the association's annual meeting.

In the four days since President Barack Obama signed the $787 billion economic recovery bill into law, providing increases in federal backing for states' social services, infrastructure and education funding, at least two Republican governors have said they may not take all of the money.

Democrat Obama made the stimulus package the major focus of his first month in office, but it won only three Republican votes in Congress. Republicans charge that was filled with wasteful spending and its $282 billion in tax cuts were not enough.

Mississippi's Republican Governor, Haley Barbour, told reporters at the meeting he would decline some $50 million in extra unemployment insurance funding, because it includes a condition for expanding the benefits to more people.

"Once the federal money is gone we would have to replace it with state money, which means we would have to raise the unemployment insurance tax on employers," he said.

Even if governors turn down money, the economic recovery law includes a provision allowing state legislatures to override governors. Barbour added that "100 percent of the governors are going to take some percentage of the funding."

Louisiana Governor Bobby Jindal, who has often been mentioned as a potential Republican presidential candidate for the 2012 elections, said late Friday he too would not take Louisiana's portion of the unemployment money.

The Louisiana Workforce Commission estimates that would total $32.8 million over three years, but once the stimulus plan ended the state would have to cover the benefits at roughly $12 million a year.

Many U.S. mayors have worried much of the stimulus money will be delayed at the state level and not reach cities in time to help them. Mayor Ray Nagin of New Orleans, Louisiana, said on Friday that because of Jindal's possible presidential aspirations, the governor has "a certain way he has to talk right now." Nagin added, "any dollars he does not want, we will take them gladly."

But in Maryland where unemployment has spiked in recent months, Democratic Governor Martin O'Malley said his state had no problem with the unemployment provisions in the law.

"I don't believe they'll cause tax increases or spending increases," he said. "We welcome the unemployment dollars."

WAITING FOR THE DOLLARS TO FLOW

The governors will meet with Obama on Monday to discuss the economy. Many states have already coordinated with their transportation agencies to apply the roads funds the federal government will distribute within the next three weeks.

The package includes $120 billion for public works projects including highway and rail projects.