The Hid­den Cost of High Un­em­ploy­ment

▶ States pay bil­lions in in­ter­est on loans to cover job­less claims ▶ “This is money that we should not be pay­ing out”

Bloomberg Businessweek (North America) - - Politics/ Policy -

Amid the eco­nomic col­lapse of 2008 and 2009, the spike in peo­ple claim­ing un­em­ploy­ment ben­e­fits forced 35 states to bor­row from the fed­eral gov­ern­ment to cover pay­outs from their state job­less funds. States have bor­rowed $134.5 bil­lion to pay un­em­ploy­ment claims since the end of 2007, when the last re­ces­sion be­gan, ac­cord­ing to the U.S. Depart­ment of La­bor. That’s gen­er­ated $3.7 bil­lion in in­ter­est for Un­cle Sam since 2011, when a pro­vi­sion in the 2009 stim­u­lus law sus­pend­ing in­ter­est pay­ments ex­pired.

While most states have found ways to re­tire the debt, three still haven’t: Cal­i­for­nia, Con­necti­cut, and Ohio. Cal­i­for­nia’s debt is the high­est, at $6 bil­lion. Un­der fed­eral law, em­ploy­ers are on the hook to pay back the prin­ci­pal through higher un­em­ploy­ment

taxes. In many states, in­clud­ing Con­necti­cut, em­ploy­ers are also ex­pected to cover the ac­crued in­ter­est.

Cal­i­for­nia has so far cov­ered $1.3 bil­lion in in­ter­est pay­ments out of its gen­eral fund. Em­ploy­ers in the state have sent Wash­ing­ton more than $1.8 bil­lion. With­out ben­e­fit cuts, they’ll be re­spon­si­ble for cov­er­ing the rest of the pay­ments, which are pro­jected to keep pay­ing at least through 2018. “It’s a bur­den,” says Marti Fisher of Cal­i­for­nia’s Cham­ber of Commerce.

Ohio’s out­stand­ing bal­ance is $775 mil­lion. Em­ploy­ers have paid $962 mil­lion in ad­di­tional taxes, and the state cov­ered $246 mil­lion in in­ter­est, ac­cord­ing to the Ohio Depart­ment of Job and Fam­ily Ser­vices. “This is money that we should not be pay­ing out,” says Ginny Grome of Restau­rant Man­age­ment in Cincin­nati, which owns 65 Arby’s restau­rants in seven states. The com­pany has paid al­most $218,000 in ex­tra taxes be­cause of Ohio’s out­stand­ing loan. “That’s a lot of money as far as rein­vest­ing” or hir­ing more staff, she says.

In Con­necti­cut, em­ploy­ers have paid $504 mil­lion in ex­tra taxes and $85 mil­lion in in­ter­est, an over­all rate more than four times higher than in neigh­bor­ing Mas­sachusetts, which took out $1.5 bil­lion in fed­eral loans but paid it back be­fore any in­ter­est was charged. Con­necti­cut expects to pay off its $101 mil­lion bal­ance next year, says Carl Guzzardi of the state’s Depart­ment of La­bor.

Colorado, Illi­nois, Michi­gan, and five other states is­sued bonds or bor­rowed from other funds to re­tire their fed­eral debt. Oth­ers raised em­ployer taxes and re­duced ben­e­fits. In Novem­ber, In­di­ana ad­vanced funds to re­tire its $250 mil­lion debt and save busi­nesses $327 mil­lion next year. “Hoosier busi­nesses and employees can now rest as­sured that this tax on hir­ing has been elim­i­nated,” Gov­er­nor Mike Pence, a Repub­li­can, said in a Nov. 10 release.

Only 17 states have suf­fi­cient cush­ions built into their un­em­ploy­ment in­sur­ance funds to get through an­other down­turn with­out bor­row­ing from the fed­eral gov­ern­ment again, ac­cord­ing to the La­bor Depart­ment. Law­mak­ers in Ohio are tak­ing steps to pre­vent a short­fall, in­tro­duc­ing leg­is­la­tion that would raise taxes on em­ploy­ers un­til an ad­e­quate re­serve is met. The bill would also re­duce un­em­ploy­ment ben­e­fits and re­quire drug test­ing to de­ter­mine el­i­gi­bil­ity in some cases.

The Ohio AFL-CIO op­poses the mea­sure be­cause it “un­fairly puts the bur­den of re­form on the backs of the un­em­ployed while em­ploy­ers will pay less over­all,” Pres­i­dent Tim Burga said in a state­ment. State Rep­re­sen­ta­tive Bar­bara Sears, a Repub­li­can who spon­sored the bill, says the time to bol­ster the fund is now, while un­em­ploy­ment is fall­ing and the econ­omy is im­prov­ing. “Do we want to go into the next re­ces­sion pre­pared to the best of our abil­ity?” she asked at a Nov. 10 hear­ing in Colum­bus. “Or do we want to go into the next re­ces­sion ill-pre­pared and take the full brunt of the hit long af­ter the re­ces­sion is over?” �Mark Ni­quette

bil­lion Cal­i­for­nia’s debt to the fed­eral gov­ern­ment for loans to cover un­em­ploy­ment

ben­e­fits The bot­tom line States have paid the fed­eral gov­ern­ment $3.7 bil­lion in in­ter­est for loans to cover un­em­ploy­ment ben­e­fits since 2011.

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