Hey, it's free money!

Isn't that what they always say, they being state and local officials, and the money being federal grants?

We, as in We the People, aren't supposed to notice the strings attached to federal funds, or the unintended consequences that may result from taking them.

Maybe every federal grant should come with a warning label: Taking this money could have deleterious effects on your fiscal health.

Consider the offer of increased federal funding for states that agree to expand their unemployment benefits. A state can't lose on a deal like that, right?

Wrong. Because the states would have to increase their benefits permanently; the stimulus package lasts only two years.

Those states that take the money might also have to provide benefits for a lot of folks who now don't qualify for them.

Tennessee's governor, Phil Bredesen, noticed the catch. "We are evaluating this piece of money," he says, "whether it makes sense for us to take it."

Tennessee is having problems raising enough money to pay the unemployment benefits it offers even now. What'll it do if it has to provide more?

To quote Gov. Bredesen, "We're in the position of going back to our legislature this year for changes in our tax structure just to keep our fund whole, and taking it to a new level may be too much of a lift for the legislature this spring."

Georgia's governor, Sonny Perdue, also had problems with this "free" money. Because accepting the federal funds now might require his state to raise taxes when the money runs out after a couple of years. "We won't compromise," he says, "if we're left with filling a hole that requires higher taxes for Georgia businesses at the end of it."

Maybe the additional benefits would still leave a state ahead of the game, but maybe not. Should a state government concerned with staying solvent take the gamble? And in this economic climate, does it make sense to raise taxes on small business even more?

Look at how state government in California has managed, or rather mismanaged, its California-sized problems. Mainly by promising benefits it couldn't afford, then holding circus-like emergency sessions of its legislature when the bubble bursts. They've always said California is the wave of the future. It's starting to look like a tidal wave. Continued...