By Lisa Lambert and Karen Pierog
WASHINGTON/CHICAGO, Sept 8 U.S. states will
start sending more than $1 billion to the federal government in
coming weeks for loans used to pay unemployment benefits and
some may have to raise business tax bills to cover the
The 2009 economic stimulus plan made it easier for states
to borrow from the federal government to pay benefits for
unemployed workers, easing the strain on their budgets as
revenue cratered and high numbers of residents filed for
assistance during the recession.
In February, President Barack Obama asked Congress to
extend the help and delay any impending tax hikes, but
Republican resistance and general criticism of the $830 billion
stimulus plan muted the possibility of a continuation.
The 2009 package of tax breaks and spending measures waived
interest on the states' loans. When it expired in December,
interest began accruing and now more than half the 50 states
must make an annual interest payment by Oct. 1.
The impact on some states' finances will be mild as they
had time to prepare for the payments. Others must find funds to
cover another bill on top of other spending demands for health
and social programs.
"The normal way that states will collect the interest is a
special assessment on employers," said George Wentworth, senior
staff attorney at the National Employment Law Project, a group
closely monitoring the loans. "The federal law says you can't
take it out of your unemployment trust fund."
States can also pull money from general revenue budgets or
issue debt for the interest payment. If they miss it, they can
be cut off from federal funds for unemployment insurance.
Employers in states with outstanding loans as of Jan. 1
would begin losing a federal tax credit, too, driving up the
amounts they pay into unemployment insurance, according to
California, Michigan, Pennsylvania, New York, and North
Carolina have to send in the biggest interest payments, said
Chris Mier, managing director at Loop Capital Markets, which
has been tracking states' unemployment loans.
Not all states owe -- 33 states will pay interest totaling
nearly $1.2 billion, according to Mier. Still, he said, "more
states borrowed more money than ever before" to handle the
deepest downturn since the Great Depression.
Currently, they have $37.1 billion in principal
outstanding, his data showed.
Obama on Thursday is expected to propose a $300 billion
plan to address the unemployment problem. Instead of easing
states' fiscal burdens, he will likely focus on creating jobs,
DRAWING ON TAXES, TOBACCO, BONDS
Many states, such as New Jersey and Georgia, cut taxes
deposited into trust funds for paying benefits during the
economic boom that preceded the current bust. That is a chief
reason they had to borrow and why companies, accustomed to
lower tax bills, may be jolted by new levies.
Michigan, which had one of the highest jobless rates during
the recession, imposed a "solvency tax" on thousands of
employers this year that will cover $47 million of the state's
approximately $106 million interest payment, according to Sara
Wurfel, Governor Rick Snyder's press secretary. Another $39
million will come out of the state's general fund and $20
million from an unemployment penalty and interest account.
Ohio, which tackled an $8 billion structural deficit
heading into the current biennium, is tapping money from its
share of a nation-wide settlement with tobacco companies for
its approximately $70 million interest payment, according to
Ben Johnson, spokesman for the state's employment department.
It would have owed more but it plans to pay off $300
million of its principal this month, he added. That still
leaves Ohio with $2.3 billion outstanding and it expects a
reduction in businesses' federal tax credit starting Jan. 1.
Last November, Texas sold $1.1 billion of revenue bonds
backed by a tax on employers. Bonds are also being considered
by Michigan and Illinois.
California owes $319.5 million in interest, said H.D.
Palmer, a spokesman for the state's finance department, the
most of any state. The payment is included in the current
budget for the employment department, so it will not add to the
state's general fund troubles.
(Additional reporting by Jim Christie in San Francisco;
Editing by Andrew Hay)