I think the Governor is just being very cautious. It may still develop into a Cat 1 if it makes landfall. Rain and flooding are going to be a big problem even if it remains a TS.
The ground is pretty saturated in my area from the rain we've already had the past couple weeks.
I don't think the federal funds kick in unless it's declared a disaster area. However the state of emergency does let him activate the National Guard.
Remember all those stranded buses in NO ?