Key U.S. House committee passes state jobless bill

WASHINGTON Wed May 11, 2011 4:55pm EDT

WASHINGTON May 11 (Reuters) - Legislation that would allow U.S. states to pay off loans from the federal government with money designated for emergency unemployment aid made its way out of a key House of Representatives committee on Wednesday.

The committee, which is controlled by Republicans, approved the legislation along party lines, according to its spokesman.

Since the bill was introduced last week it has raised the ire of Democrats and advocacy groups, who say it will strip long-term unemployed people of vital assistance.

The legislation would allow states to apply $31 billion set aside for extended unemployment benefits through the end of the year to pay interest or principal on loans from the federal government for their jobless benefit programs.

In the stimulus plan, the U.S. government suspended interest charges on the loans but when the plan ended in December, the suspension was lifted. States had outstanding unemployment loan balances totaling $48.4 billion, with $516 million of interest owed as of April 15, according to Loop Capital Markets.

The bill would also allow states to apply the money to wage subsidies or regular jobless benefits. They could also continue using it for extended payments given to workers who have exhausted the typical 26 weeks of aid.

The U.S. government provided funds for extra benefits after the recession that began in late 2007 caused the jobless rate to spike. Currently, people can collect up to nearly 100 weeks of assistance and 3.45 million are relying on the assistance.

The legislation "sends the wrong signal to states that have mismanaged their unemployment trust funds for years and were therefore woefully unprepared to help their residents through this last recession," said Christine Owens, executive director of worker advocacy group the National Employment Law Project.

The group closely monitors the trust funds states use for jobless benefits and that they replenish with the loans.

Ways and Means Chairman Dave Camp said states will raise unemployment insurance taxes on employers to pay off loans.

"We all want to help those who have been affected by the recession move from collecting an unemployment check to earning a paycheck. But we can't do that if we are taxing the very men and women we're counting on to help create the jobs that so many are seeking," he said.

The Budget Committee also must pass the bill before a vote in the full House, where it will likely win approval from the Republican majority. Corresponding legislation has been introduced in the Senate, where it will face a rockier time from the Democrats who hold the power.

Former House Speaker Nancy Pelosi said the bill "could destroy as many as 300,000 jobs."

"Republicans are threatening to cut off a lifeline to millions of middle class Americans who lost their jobs through no fault of their own," she said.

(Reporting by Lisa Lambert; Editing by Andrew Hay)