April 2 (Bloomberg) -- Tossing bags of billions of federal bucks at state and local governments desperately in need of cash hasn’t everywhere elicited tears of gratitude or knees bent in thanksgiving to the Obama administration.

In South Carolina, Governor Mark Sanford says he is turning down $700 million in stimulus money for education. This ignited chaos among lawmakers, predictions of doom from educators, protests from the citizenry and a thicket of legal opinions about whether the state can get the money, anyway.

It isn’t as if South Carolina rolls in wealth. It ranked a lowly 42nd of 50 states in per capita income in 2007, and 43rd in per pupil spending, according to the most recent U.S. Census Bureau stats.

Still, Sanford says no. Not the state’s stubbornly high drop-out rate, state budget deficits or the specter of teacher layoffs persuade him. Unless he can spend it the way he wants, which is to pay off debt, he doesn’t want it.

A cold shoulder to Washington meddling likewise drives Louisiana Governor Bobby Jindal and his neighbor, Texas Governor Rick Perry, to say no thanks to hundreds of millions of dollars for unemployment insurance from the stimulus package.

To get the money, the states say they would have to enact permanent expansions in the program, which would eventually fall to businesses to pay.

Jobless Texans

Never mind that almost 136,000 jobless Texans exhausted their unemployment benefits last year, unable to find work. As a percentage of the state’s unemployed, that number was the 16th highest in the country, the U.S. Labor Department reports.

Next door, Louisiana’s low unemployment benefits ($209 per week on average) makes it 49th among states.

These three conservative Republican governors, holdouts among a smattering who initially objected to the stimulus, are standing on principle rather than ease their money troubles.

I don’t fault them for wanting to govern in the way they see fit. But the principles are dubious and dangerous.

In South Carolina, Sanford says it is a good thing to use budget deficits to “restructure,” and is OK with layoffs. He says using the federal money for operations would only leave the state in a lurch when Washington’s largesse gives out.

He figures that by paying down principal on the state’s school and university bonds, which comes to roughly $580 million, South Carolina would save $162 million in debt service and $125 million in interest payments over 13 years.

Critical Points

His reasoning misses critical points: Preventing teacher layoffs is a good thing in a recession; and, as one group says, there is “the enormous economic power of education.”

With fewer high school dropouts and more college graduates, South Carolina could build a higher-paid work force and thus generate more revenue for the state, reports the Atlanta-based Southern Education Foundation. The group traces its beginnings to 1867, when it was formed to advance the cause of public education and racial equality in education.

“Improving South Carolina’s educational attainment is the state’s best method for developing revenues to pay the state’s debts,” Lynn Walker Huntley, president of the foundation, wrote Sanford this week.

By tweaking high school and college graduation rates a tad, the foundation counts between $1.9 billion and $2.4 billion in additional tax revenue over the next decade. And that assumes job growth won’t start any time soon.

Who Suffers

In their states, Jindal and Perry say businesses, and therefore employees, would eventually be hurt when the stimulus money runs out and tax rates on companies rise.

They ignore that their legislatures could later repeal any changes enacted now.

More importantly, businesses in those two states now pay lower unemployment taxes than their counterparts in most of the rest of the country.

And when you look at the changes required, you have to wonder what is wrong with them.

Counting an employee’s most recent paychecks in calculating benefits seems perfectly reasonable. That is required to get a third of the money.

For the rest of it, states would have to do at least two of the following four: They could grant benefits to laid-off part- time jobs; extend benefits to those who quit jobs to move with a spouse or to avoid family violence; extend benefits for an extra 26 weeks to those participating in certain job training programs, or boost payments by at least $15 per dependent each week, with certain caps applying.

Asking for Money

The governors remind me of a woman who approached my car at a stoplight a few years back. She knocked on the window, said she was hungry and asked for money.

As it happened, I had just been to the market shopping for a special dinner, so I reached into a grocery bag, pulled out a loaf of sun-dried tomato bread and offered it.

I might as well have handed her an alligator for her willingness to touch the thing.

“I don’t want that,” she sniffed, looking as if I had just insulted her sainted mother. I don’t know whether she was turned off by the red flecks or the fact that it wasn’t cash.

In any case, I rolled up the window and drove off, munching on a piece of bread.

She walked away with neither food nor money. At least she wasn’t making the choice for millions of others.

(Ann Woolner is a columnist for Bloomberg News. The opinions expressed are her own.)

To contact the writer of this column: Ann Woolner in Atlanta at awoolner@bloomberg.net.

Last Updated: April 2, 2009 00:01 EDT