March 26 (Bloomberg) -- Louisiana Governor Bobby Jindal, a Republican, cited fiscal responsibility when he turned down about $98 million in unemployment aid that was part of President Barack Obama’s $787 billion federal stimulus package.

That doesn’t make sense to Clarence Hawkins, the mayor of Bastrop, Louisiana. An International Paper Co. mill closed in November as pulp demand fell worldwide, leaving the town without one of its biggest employers.

“Give me something now,” said Hawkins, a Democrat whose city of 12,500 lost more than 400 jobs. “Help me right now. I need to survive today.”

Bastrop is bracing for another blow. A Pilgrim’s Pride Corp. poultry plant 35 miles away may close, shedding 1,300 more workers unless a bankruptcy judge approves the plant’s sale. The Pittsburg, Texas-based company, which is the world’s largest chicken producer, filed under Chapter 11 in December.

With U.S. joblessness at a 25-year high, the rejection by Jindal and five other Republican governors of more than $1.8 billion of the stimulus has drawn protests from Democrats and their allies.

In Alaska, Governor Sarah Palin rejected $288 million, including funds for education and social services. She cited concerns about sustaining the spending after federal help ends. South Carolina Governor Mark Sanford has said he’ll refuse $700 million in stimulus money. He says the funds will not create jobs and will merely add to the national deficit.

Lawmakers in both states, including some Republicans, say they will try to overrule the governors and accept South Carolina’s full $2.8 billion and Alaska’s $930 million.

‘Fundamental Transformation’

Behind the clashes, which have given rise to television commercials by the Democratic National Committee in South Carolina and labor rallies in Louisiana and Texas, is one common theme: a debate over whether state unemployment insurance programs are the right vehicles for helping the needy.

One provision in the stimulus would make short-term or part-time workers more likely to qualify for the benefits, along with those forced to give up jobs because of hardships such as domestic violence or family illness.

“This is a fundamental transformation of the unemployment compensation program to a welfare-style program,” said Jim Patterson, vice president of the Louisiana Association of Business and Industry in Baton Rouge, the state’s largest business lobby.

Such aid should be reserved for “people who deserve it and not just folks we like to willy-nilly pay money to,” Patterson said in an interview.

Presidential Politics

Jindal’s move puts Louisiana in the heart of a just-say-no belt -- a cluster of southern states whose Republican governors have declined parts of the recovery package. Along with South Carolina, the other states are Texas, Mississippi and Alabama.

Sanford of South Carolina rebuffed $90 million to expand aid to part-timers. Alabama Governor Bob Riley asked his legislature to oppose rules that would qualify the state for $99 million in jobless benefits. In Mississippi, Governor Haley Barbour turned away $56 million.

Democrats and their allies are using the issue to lay a foundation for gubernatorial elections and label potential 2012 Obama challengers, such as Jindal, as out of the mainstream.

In South Carolina, the DNC is running ads condemning Sanford, 48, for “kowtowing to the Rush Limbaugh-led obstructionist wing” of the Republican Party, invoking the name of the conservative radio talk show host.

‘Narcissistic’ Decision

In Alaska, Bob Poe, a Democrat running to unseat Palin, accused her of a “narcissistic” decision meant to appeal to her “ultraconservative base.” Palin, 45, was Arizona Senator John McCain’s running mate in last year’s presidential elections.

“We will request federal stimulus funds for capital projects that will create new jobs and expand the economy,” Palin said in a news release March 19. “We won’t be bound by federal strings in exchange for dollars, nor will we dig ourselves a deeper hole in two years when these federal funds are gone.”

The governor is “taking the high road here,” Alaska Senate President Gary Stevens, a Republican, told the Associated Press on Feb. 17. “I think I’d rather personally take the low road here and say I don’t want to leave any money on the table.”

In Louisiana and Texas, the United Steelworkers and the AFL-CIO are holding rallies and demanding that legislators override decisions by Jindal, 37, and Texas Governor Rick Perry, 59. Both Republicans may be 2012 presidential candidates.

Requirements for Funds

All 50 governors accepted funds from Obama’s $787 billion recovery package to boost unemployment payments by $25 a week, to add as many as 33 weeks of benefits, to subsidize private health insurance for the unemployed and to eliminate federal taxes on the first $2,400 in jobless pay.

The money for jobless benefits that Jindal and others rejected comes from a pool that constitutes less than 1 percent of the stimulus money -- $7 billion offered to states under the Unemployment Insurance Modernization Act. The funds are meant to update the nation’s Depression-era unemployment system, which was designed around male, full-time workers.

The act requires that states use a worker’s last four quarters of earnings when calculating aid eligibility. Twenty states and the District of Columbia already use an “alternative base period,” which helps seasonal, part-time and low-paid employees.

For Louisiana, the stimulus would provide a one-time payment of $32.8 million to pay for that change, which would cost the state about $12.5 million a year, according to the Louisiana Workforce Commission.

‘Bridge to Re-employment’

To receive the funds, states also must adopt two of three requirements. They have to provide part-time workers with benefits previously denied because they didn’t want full-time work; extend payments to domestic violence victims or people with sick relatives who are forced to quit work; increase aid to those with dependents; or pay the permanently jobless to attend training.

Such benefits go beyond the intent of the unemployment insurance system, said Curt Eysink, a spokesman for the Louisiana Workforce Commission.

“Our whole structure is based on the fact that to receive benefits you have to be able and willing to work,” Eysink said in an interview. “We absolutely view it as being a bridge to re-employment.”

It is impossible to estimate how many people could be affected by such changes, or what they would cost, Eysink said. No matter what, more jobless workers would join the rolls, he said. Also, because federal law requires states to consider an employer’s record of layoffs when calculating unemployment premiums, businesses could feel the effects for years to come.

Unions Seek Help

In Louisiana, unions fighting for the money acknowledge that it would aid few of their members, most of whom work full time and probably qualify for benefits under current law.

“This isn’t just about the union worker,” said Ben Lilienfeld, a rapid response coordinator for the United Steelworkers. “This is about Joe and Jane American worker who have lost their jobs.”

He and other union leaders say the law change would help people who can’t work full time and those who are the lowest- paid.

“It’s going to help those who need it the most,” said Louise Reine, president of the Louisiana AFL-CIO in Baton Rouge. “This is a benefit they’ve earned.”

‘First Hit Free’

In declining the funds, Jindal said in a news release Feb. 20 that it would be “irresponsible to enter into an expansion of benefits” that would ultimately raise business taxes.

Employers echo Jindal, saying the money would lead to higher business taxes. In Texas, employers could be forced to pay an estimated $100 million a year when the federal aid expires, said Bill Hammond, president of the Texas Association of Business in Austin.

“Congress wants to further increase states’ dependence on the federal government,” Hammond said in an interview. “It’s like a drug dealer: The dealer gives you your first hit for free to get you hooked, and then you are addicted and are paying the consequences for a long, long time.”

In rural northern Louisiana, job losses are rippling through the economy. The latest trouble for Bastrop came last week when a worker at the Kentucky Fried Chicken restaurant up the block from City Hall called Mayor Hawkins. The owner had shuttered the eatery without warning, sending its $6.55-an-hour workers to the unemployment line.

Even some self-described fiscal conservatives who opposed the federal stimulus question Jindal’s decision.

“The fact of the matter is, it has been done; it is our tax money now,” said Republican state Senator Robert Adley, of Benton. “I want as much of it as we can possibly keep.”

To contact the reporters on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net; Jerry Hart in Miami at jhart@bloomberg.net

Last Updated: March 26, 2009 00:01 EDT