Love-hate relationship with D.C. money grows

On the same day last week that state budget director Chris Atkins announced Indiana would be able to tough out a series of automatic federal budget cuts, Lt. Gov. Sue Ellspermann announced the creation of a new office that will lobby for more federal defense spending.

That dichotomy—saying the federal government is spending too much money, while looking for as much of that money as possible—is old hat around the Statehouse. Former Gov. Mitch Daniels wrote a book dubbing unchecked federal spending the country's next "red menace" shortly after accepting billions in federal aid with the caveat that he'd be a fool not to take the money if it's being offered.

Gov. Mike Pence has softened Daniels' assertion that "government never created a job" to say that "government has never created a job, other than a government job." But the value of that "government job" is still very much in question.

The almighty federal dollar is one Indiana leaders love to hate, and hate to love.

John Ketzenberger, president of the Indiana Fiscal Policy Institute, points out that Indiana's defense industry has rippled out beyond simply arming the troops in places like northern Indiana, where Humvees were converted from military use for public sales. But the state's leaders are nothing if not fiscal conservatives.

"How important is federal money to the economy, through all these various means? I think it's very important from an economic perspective," he said. "So that's the conundrum."

That dance is not limited to defense spending. Lawmakers pondering the cost of expanding Medicaid for 400,000 residents have been lobbied hard by the Indiana Hospital Association with the argument that not expanding the program would cost the state $10.5 billion in federal aid.

Complaining about Washington's dysfunctional spending habits, while looking for a bit of the action, is hardly an Indiana phenomenon. Political leaders in every state tout their ability to pass balanced budgets (they all must, because they can't print money) at a time when the federal government can't even approve an out-of-whack budget.

Many of those leaders later complain that their state's hard-earned tax dollars flow to Washington while they get little in return.

The Economist magazine checked that balance in a 2011 study of U.S. Census and IRS data compiled from 1990 to 2009. The donors, states like New Jersey, sent hundreds of billions of dollars more than they got back from Washington. And takers, like West Virginia, collected billions more than they put into the national pot.

Indiana came in about even over those two decades, sending $632 billion in tax dollars to Washington and collecting back $642 billion in federal spending.

Despite getting back almost exactly what the state puts in the national pot, Indiana leaders still like to razz the feds for only handing back roughly 92 cents of every federal road dollar Hoosier motorists kick in.

John L. Krauss, director of the Indiana University Public Policy Institute and a former lieutenant to former Indianapolis Mayor Bill Hudnut, said federal spending isn't the sole answer, but it is part of the solution when it comes to building a stable economy.

He equates finding the right balance with funding a 401(k) plan: States need to consider private and foreign investment along with federal spending.

Auto-industry stalwarts like Michigan and northern Indiana were hit hard by the collapse of domestic carmakers, while federal-heavy areas like the Washington, D.C., suburbs rode out the recession with relative ease. Now that the automatic federal budget cuts have been triggered, states like Maryland and Virginia are being hit hardest.

Finding the right balance is up to Indiana's elected leaders.

"You elected the current administration, you elected the men and women in the General Assembly to make wise, informed judgments, and you hope they have sufficient facts and judgment to do that," Krauss said. "It's not a simple thing to do."