Financial Coercion: Federal Control of South Carolina’s Entitlements

How the federal government decides who receives unemployment benefits

Last month, we highlighted various ways in which South Carolina finds itself using state tax dollars for federal priorities. Usually what happens is this: The federal government promises the state money on the condition that the state pay a sizeable proportion of the costs, and state lawmakers – usually incapable of turning down federal money – happily play along.

Sometimes, though, Washington takes a different approach. In these cases, the federal government offers the state a massive pot of federal cash but won’t transfer the funds until the state changes its laws according to federal demands.

One of the most egregious examples of this kind of financial coercion happened in 2009.

Part of the Obama administration’s stimulus bill established unemployment “incentive grants” to states who “modernize” (translation: expand) unemployment benefit eligibility. Any state whose law coheres with federal standards could receive the money. For South Carolina, the federal government offered $97 million dollars in federal funds if – and only if – state lawmakers changed state law to expand unemployment benefit eligibility.

In June of 2010, the General Assembly passed S. 391 and the governor signed it into law. The bill’s ostensible purpose was to reform and rebrand the notoriously inept Employment Security Commission, renamed the Department of Employment and Workforce, in addition to creating a plan to pay back the state’s debt to the federal government and rebuild the unemployment insurance trust fund. The bill amended state law to:

• Provide for an alternate base period (a way of calculating eligibility that would presumably make more people eligible)
• Provide unemployment benefits to laid off part-time workers seeking only part-time work,
• Provide unemployment benefits to people who left their jobs because of “compelling family circumstances.”

The changes in state law contained in this bill were the exact changes the federal government mandated in order to receive an “incentive grant.” The bill “modernized” South Carolina unemployment benefits according to federal standards and eligibility rules – which will be in effect even when the federal “incentive grant” funding dries up, as it inevitably will.

In essence, the law put South Carolina taxpayers permanently on the hook for future entitlement spending, without the promise of federal money.  It passed with only one dissenting vote. The federal government paid up and gave South Carolina $97 million dollars in unemployment money, after confirming the state made the necessary “modernization.”

We’ve paid a heavy price for accepting these “federal” unemployment dollars: a statutory expansion of a state entitlement, which the state will forever be responsible for upholding.  South Carolina lawmakers not only refuse to reject federal funding, as in the case of the Clyburn Center, they actively introduce legislation aimed at receiving federal dollars.

Some of these same lawmakers are quick to condemn “federal intrusion” and “Washington politicians” for deficit spending. And yet when they have the chance to do something about out-of-control federal spending – and at the same time preserve state law’s integrity from federal meddling – they choose to do nothing.