Mitch Daniels and Economic Stimulus and State Government and Government & Economic Development and Economic Development and Small Business

Indiana slow to accept federal stimulus help

September 25, 2010

Indiana turned up its nose at as much as $103 million in federal stimulus money that could have helped poor people and small businesses weather the recession.

Under political pressure, Gov. Mitch Daniels’ administration now has come late to the game and, at best, will recover $24 million in federal reimbursements for money spent by not-for-profit agencies on services to the poor. An application submitted Aug. 11, just 20 days before the 18-month window to apply closed Sept. 1, is pending.

While other states hustled to apply and creatively devised ways to draw down the federal money, Indiana showed neither speed nor ingenuity in responding to the $787 billion American Recovery and Reinvestment Act, according to LaDonna Pavetti, director of the Welfare Reform and Income Support Division at the Center on Budget and Policy Priorities, a non-partisan research group in Washington, D.C.

Since March 2009, more than a quarter million people in 36 states and the District of Columbia were placed in subsidized jobs ranging from entry-level to professional positions. They found that work at the expense of as many as 10,000 Hoosiers who may have gotten temporary jobs and “been given some hope” had the state pursued job-subsidy dollars, said Indiana Rep. Peggy Welch, D-Bloomington.

Welch Welch

Small businesses, which could have had free or reduced-cost employees on staff for six months, also lost out because of the administration’s failure to participate in the program, she said. They “are the backbone of our economy. We need to be helping small businesses be successful by having subsidized employees coming on and helping them.”

It’s not clear why Indiana did not pursue the stimulus money more aggressively. A spokesman for the Family and Social Services Administration said the state initially didn’t think it would qualify.

Daniels’ spokeswoman, Jane Jankowski, declined to make the governor available for an interview, saying the matter did not involve administration policy. She did not respond to a question about whether Daniels’ stated opposition to the Obama administration’s stimulus policies played a part in the state’s decision against seeking funds as soon as they were available.

In any case, by several measures, Indiana appears lax compared to other states on what has been done for the poor and small businesses during the recession.

stimulus boxAmong the many provisions of the stimulus bill, which President Obama signed into law in February 2009, was a $5 billion emergency Temporary Assistance for Needy Families fund made available to the states to use for three purposes: basic assistance; non-recurrent, short-term benefits; and subsidized employment. TANF is the federal welfare program administered by the states to help poor families.

Program eligibility

Only states that experienced increases in their TANF rolls during the recession could use the emergency funds for basic assistance. Though Indiana has one of the worst unemployment rates in the nation and its poverty rate increased 3.2 percentage points (to 16.1 percent) in 2009, its TANF rolls declined, making it ineligible to use emergency funds for that purpose.

 All states, however, had the option to pursue stimulus funds for the other two purposes and were given flexibility to customize them to meet their needs.

Job subsidies have been hailed by conservatives and liberals as an opportunity to put unemployed individuals to work, at least temporarily, and provide low-cost or free labor to struggling small businesses. Pavetti’s center found examples in other states where subsidies helped small businesses proceed with expansions and rehire laid-off employees sooner than anticipated. States had collected more than $1 billion for job subsidies as of Sept. 10.

States used the short-term benefits to assist families with utility bills, housing, transportation, job-readiness training, clothing and the like. As of Sept. 10, states had collected $1.8 billion for short-term benefits for their needy residents.

If the recent application is approved, Indiana will share in the latter.

“If we are awarded the money, we will announce how much will be going to individual non-profit groups” that provided the services, said Marcus Barlow, a spokesman for the Family and Social Services Administration.

It apparently took political pressure from Welch to get Daniels’ Republican administration off the dime.

“When ARRA passed in February [2009], we evaluated the bill and our analysis came back that we didn’t qualify,” Barlow said. More than a year later, FSSA signed a $188,000 contract with Chassman Consulting Inc. of McLean, Va. Chassman persuaded FSSA that Indiana was eligible for money and could use it to reimburse not-for-profits for services they already had provided.

Cautious approach

Barlow said FSSA had taken a cautious approach but was on the case even before Welch began pressing for action.

“In all of our decisions when it has come to stimulus funds, we have taken, I think, the better approach rather than just saying, ‘Ew, money, money, money; let’s grab everything’ and then have to pay a bunch back because we didn’t actually qualify for that,” he said. “We’re going to do an analysis beforehand.”

Last February, Welch read a news story about the job-subsidy program in Mississippi.

“I thought, ‘Gosh, if Mississippi, with a Republican governor and somebody as Republican as Haley Barbour thought this was a good idea, we should jump on it,’” she said. After conducting some research, Welch drafted a bill to require FSSA to participate in the job-subsidy program.

During negotiations, Republican lawmakers insisted the bill should authorize, not require, FSSA to act, Welch said. That language ultimately became a small part of Senate Bill 23, which passed the Republican-led Senate 50-0 and the Democrat-led House 85-12. Daniels signed it into law March 25.

FSSA and Welch say they assumed the bill would be moot if Congress failed to extend the emergency TANF program; there wouldn’t be time to get it up and running before the federal program ended Sept. 30. Congress did not extend the program, but House Speaker B. Patrick Bauer, D-South Bend, said, “There was plenty of time to do it. They just didn’t act.”

It ultimately took FSSA six months after Welch’s overtures to submit its application in August 2010 to receive funds that had been available since early 2009. Megan Ornellas, FSSA’s chief financial officer, said the agency has been working with not-for-profit organizations to quantify ways they’ve helped the poor. To receive emergency TANF funds, states had to come up with a 20-percent match of the amount they received, and the federal government will count the not-for-profits’ expenditures toward Indiana’s match.

Barlow acknowledged the match requirement had been a barrier to participating until Chassman suggested creative ways to find it.

“All states initially struggled with how to come up with the 20-percent match,” Pavetti said. Urged by the U.S. Department of Health and Human Services to be creative in finding the match, “some states didn’t put any new money into those programs,” she said. Among other things, they shifted state workers already charged with finding people employment—counterparts to employees of the Indiana Department of Workforce Development—to the job-subsidy program and counted their salaries toward the match.

Waiting for money

Pavetti said it’s likely Indiana will receive the money since its application was submitted before the deadline and its allocation was counted against the $5 billion appropriation. The money has since run out, however, so no more is available to Indiana or any other state that failed to pursue the full amount for which it was eligible.

The state’s failure to seek job-subsidy funds “was a missed opportunity for poor people in Indiana,” she said.

To date, Indiana is one of only two states that have received no emergency TANF funds. Pavetti called Indiana “the outlier as far as the only state that has had a significant amount of unemployment that hasn’t accessed the fund. All the other states except Wyoming, which has a tiny caseload and really didn’t have a big enough unemployment problem, actually figured out how to do that. And Indiana did not.”

Wyoming had an average of 660 TANF recipients in fiscal 2010, compared with Indiana’s 94,631, and its unemployment rate peaked at 7.6 percent during the recession; Indiana’s reached 10.6 percent.

Despite high unemployment and poverty among Hoosiers, the state’s TANF rolls actually declined since the official start of the recession, December 2007 through September 2009, leading to FSSA’s original assessment that Indiana did not qualify for TANF emergency funds.

Pavetti noted the 6.6-percent decline in Indiana’s TANF rolls occurred at a time the number of unemployed individuals increased 108.3 percent. The decline “is not explained by the unemployment rate; it’s not explained by the poverty rate; it’s not explained by need,” she said. “So our expectation is that it is explained by how states operate their programs.”

James Dunn, FSSA’s manager of TANF policy, said the decline occurred in part because, just as the recession was beginning, some Hoosier recipients—mostly children—had reached the maximum number of years they could receive benefits under federal law. It also may be because Indiana’s eligibility standards, among the most restrictive in the country, allow only the poorest of the poor to receive benefits, he said.

“When the General Assembly set these up in 1987, they decided that $155 per person was all that one person needed to live for a month,” Dunn said. “And they haven’t changed that.”•

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