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Federal stimulus plans throw wild card into legislative session

January 26, 2009

The dynamics of the 2009 legislative session have changed a bit earlier than anticipated.

Indiana lawmakers had been expecting to cope with the chore of drafting a budget that required significant cuts in virtually every aspect (assuming, as all parties agreed, that raising taxes or imposing new ones were not options).

House Democrats upped the partisan ante with a proposal to redirect Major Moves road-building funds and use them to jump-start public infrastructure projects. They wanted to offer a state-provided boost to the economy, but their preliminary proposal was denounced as ill-conceived by Gov. Mitch Daniels' administration, which saw it having a direct opposite effect, costing the state hundreds of millions of dollars in federal highway funds and delaying key building programs.

But even before the feuding voices were tempered on this issue, a new variable was interposed.

Details began to leak from Washington about the likely federal stimulus program and what it would mean for Indiana. So even before the Legislature began to put pencil to paper on the budget, many initial assumptions seemed moot.

The state now appears to be in line to recoup as much as $3 billion from the federal program, with funds available to shore up Medicaid programs, aid schools, and improve infrastructure.

While the money may seem like the answer to all of our woes, it actually may complicate the process.

We have explained to you over the years that the battle over divvying up funds tends to be fiercer than those in which assorted functions must be trimmed. The mindset changes from one of fixed determination and shared sacrifice to one in which assorted lawmakers and interest groups lay siege over every new discretionary dollar.

Some will question why such a large chunk likely will go to Medicaid matters. Others will push to help the growing ranks of Hoosiers who cannot do for themselves because of layoffs, or will favor boosting the economy through jobs programs.

But the feds may tie our hands on this.

Disputes will break out over who should control disbursement of what will be large amounts of hard infrastructure dollars.

Should the state set the priorities, or will we see direct allocations to localities?

Even if the state opts to retain control of funds, that doesn't end the debate. House Democrats want a significant voice in spending the infrastructure dollars. They would prefer to set some of the key priorities, rather than deferring to the governor on which projects are funded.

Either way, the current thinking is that the hard infrastructure dollars will not come with strings that tie them to a broader national or even regional vision. And since the funding apparently will not be transformative in nature, there will be almost infinite flexibility once it flows from federal coffers.

If "soft" infrastructure funds are to be used for schools ($800 million is the current expectation), additional disputes inevitably will arise over use of the money. Democrats favor covering the cost of inflation and speeding along school construction projects. Other options include adopting funding priorities set by the new Department of Education leadership, tying funding to earmarking certain percentages of spending to "the classroom" or tying funding to achieving certain degrees of consolidation and inter-district cooperation.

So, just when you were ready to tighten your belt and your seat belt, the prospect of a $3 billion boost from above sounds just like what the budget doctors ordered. But this portends to be considerably more complicated—and divisive—than the original budget-paring struggle we had expected. And if the parties in this debate don't start working out a framework soon for how a stimulus package will be addressed, the issue could disrupt the legislative process in the late stages.

If the stimulus situation does not become clear quickly, lawmakers could face the need to take a breather of sorts, watching the response of the economy over the next few months, and measuring the health of the manufacturing industry.

That could mean a special session to integrate everything, or to address spending the separate stimulus dollars. 

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Feigenbaum publishes Indiana Legislative Insight. His column appears weekly while the Indiana General Assembly is in session. He can be reached at edf@ingrouponline.com.

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