By Mark Niquette 2 hours ago
U.S. states are still repaying federal loans for unemployment benefits more than six years after the recession, costing businesses from mighty Apple Inc. to Ohio’s humble Canton Chair Rental hundreds of millions in taxes and interest. And only a third of states are prepared for the next downturn.
Thirty-five states borrowed from a federal fund when dismissals from the 18-month recession that began in December 2007 depleted jobless benefit accounts. California, Ohio and Connecticut are the only ones that haven’t retired their debt, which businesses must repay through higher levies. California firms alone have already paid $1.8 billion though last year, and the loan isn’t projected to be paid off until sometime in 2018.
“This is money that we should not be paying out,” said Ginny Grome of Restaurant Management Inc. in Cincinnati, which owns 65 Arby’s restaurants in seven states and 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 how many more employees could we have had.”
A bill was introduced in Ohio on Nov. 9 to build reserves by 2025 to avoid borrowing again when the next recession hits. But only 17 states have an unemployment insurance fund that the U.S. Labor Department considers sufficient for a downturn, according to a June report, as states try to balance an adequate safety net with an aversion to higher taxes.
“You have to make difficult choices at times, but the system is set up in a way that the states are responsible,” said Doug Holmes, president of UWC-Strategic Services on Unemployment & Workers’ Compensation, a Washington association representing employers.
Each state maintains a fund fed by taxes on employers to cover jobless benefits. When a state must borrow from the federal government to cover those payments and has outstanding balance for more than two consecutive years, employers pay a higher rate to retire the debt. Interest also accrues, which some states pay by assessing businesses and which others cover with state dollars.
Colorado, Illinois, Michigan and five other states issued bonds or borrowed from other funds to retire their federal debt, while others raised employer taxes and reduced benefits, Holmes said. Indiana advanced funds last month to retire its $250 million debt and save businesses $327 million next year, Governor Mike Pence said.
“Hoosier businesses and employees can now rest assured that this tax on hiring has been eliminated,” Pence, a Republican, said in a Nov. 10 release.
In Connecticut, where employers have paid $504 million in additional taxes and $85 million in interest -- and have a rate more than four times higher than in Massachusetts -- the state expects to pay off its $101 million balance next year, said Carl Guzzardi of the state’s Labor Department.
California owes $5.9 billion, and there’s no appetite among businesses for higher taxes or among employee groups to accept benefit cuts, said Marti Fisher of the state’s Chamber of Commerce.
“The only option in this state is for the employers to pay it off,” she said. “It’s a burden.”
Ohio’s outstanding balance is $775 million, after employers have paid $962 million in additional taxes and the state $246 million in interest, according to the Job and Family Services department. California has paid $1.3 billion in interest since 2011, part of $3.7 billion nationwide, federal data show.
The Ohio bill introduced this month to revamp the system ties the employer tax rate to whether the state has a “minimum safe level” of reserves, while also reducing maximum worker benefits and requiring drug tests for some applicants.
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, said the timing is right to bolster the fund while unemployment is at 4.4 percent and the economy is improving.
“Do we want to go into the next recession prepared to the best of our ability, 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?” she said during a Nov. 10 hearing in Columbus