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Employers Picking Up The Tab For Loans To States

WASHINGTON (AP) — States that borrowed billions from the federal government to keep unemployment benefits flowing through the recession now have to start paying those loans back, and they’re hitting businesses with new assessments and higher taxes to make that happen.

In all, 27 states owe the federal government nearly $38 billion. The first interest payments on those loans were due Friday and totaled about $1.1 billion.

Most states charged employers a one-time assessment to cover the charge. But those charges are only part of the story.

Businesses pay two types of unemployment insurance taxes. A federal tax primarily covers the administrative cost of the
program, and a state tax pays for the basic benefits that laid-off workers receive. In most of the states that borrowed from the feds, the federal tax will increase by $21 per worker next year.

Similar increases will take place in subsequent years until the loans are paid in full. Meanwhile, the state taxes have soared in just about every state to deal with the strain caused by the high numbers of people applying for unemployment benefits.

Joe Olivo, owner of Perfect Printing in Moorestown, N.J., with 45 employees just outside Philadelphia, estimates that he’ll pay an additional $24,000 this year in unemployment insurance taxes. He’s also dealing with higher expenses elsewhere, mainly for his employees’ health care.

“The problem is I can’t grow my sales fast enough or raise my prices fast enough to make up for that additional expense,” Olivo said.

Olivo’s rates also went up because, like many employers, he reduced staff during the recession, and states generally charge higher rates to companies with past layoffs.

“It all goes into putting me into a mode where you’re just so much more hesitant to invest,” he added. “I put my house and all my family’s assets into loans when I choose to invest. I don’t have the luxury of being wrong like some of these large companies.”

States collect payroll taxes to pay future unemployment insurance benefits, but the recession soon drained whatever
reserves most states had generated. Those states then had to resort to federal loans to keep payments flowing. The federal government is charging an interest rate of about 4 percent.

To make its interest payment, Connecticut assessed its employers a one-time charge of about $40 per worker. New York charged businesses roughly $24 per worker, and Delaware charged $12.60, according to the National Employment Law Project, which is tracking states’ efforts to repay their loans.

Ohio is making its $71 million interest payment with money obtained through a lawsuit settlement with tobacco companies. California is borrowing more than $300 million from its disability insurance trust fund.

New Jersey sets an example of the triple whammy hitting employers. Businesses paid a one-time $24 assessment per worker to cover the interest payment due last Friday. Next year, they’ll pay an extra $21 per worker in federal taxes to help pay off the loan principal. And at the state level, unemployment insurance taxes increased an average of $130 per worker this year and will go up by a similar amount over the next two years.

“Right now, the way the economy is, any little bit that increases costs can put some of our members over the edge,” said
Lori Ehlbeck, state director for the National Federal of Independent Business in New Jersey.

Some states, such as Texas and Idaho, have paid off their federal loans by issuing bonds. Businesses in those states won’t
have to pay a higher federal tax next year as a result, but those businesses are still dealing with significantly higher state taxes.

The federal government delayed interest payments on the federal loans for two years, a byproduct of the 2009 economic stimulus bill. Congress declined to pass legislation that would delay interest payments any further.

States aren’t just passing on the higher costs to businesses though. Many have looked to reduce benefits. Six states have
reduced the number of weeks someone can collect basic benefits. For example, Michigan, South Carolina and Missouri cut the time frame for collecting benefits from 26 weeks to 20 weeks. Opponents of the cuts, such as the National Employment Law Project, argue that the cuts will not prevent significant tax hikes and that they undermine
the program’s ability to help the unemployed get through tough economic times.

The tax increases in some states cannot be blamed simply on the soaring demand for unemployment insurance. Many states went into the recession ill prepared for bad times. The reserves those states had set aside for unemployment insurance payments had dwindled to historically low levels generally because state lawmakers wanted to limit employer taxes. In New Jersey’s case, lawmakers diverted money from the state’s unemployment insurance trust fund and used
the revenue to pay for health care for the indigent.

“What really galls me as a business owner in New Jersey is that they raided these funds for years and used it for other purposes,” Olivo said. “They were warned that if there was ever a downturn, there was going to be a huge problem.”

(Copyright 2011 by The Associated Press. All Rights Reserved.)

  • Wheres common sense when you need it

    Here is another reason why we can’t do business in this country anymore. Our government continues to sqeeze every breathe of life out of every single American, whether in business or not. Wht would anyone in their right mind want to invest in a business in the USA? Between fees, insurance, taxes, alot of unnessesary regulations, do-gooder groups, lawsuits, lawyers,etc, why? It is ashame that this country has become a nation of cry babies and complainers. We were once the greatest economic powerhouse the world had ever seen and now look at us. The two biggest things we produce is DRAMA and DEBIT! I wonder how we will prepare our kids for the long commute they will have to get to their job when they get older. China is a very long flight!

  • Marshall Hiepler

    Politicians! Like a scared group of juvenile boys that have just hit a baseball through the nations window, they are all pointing the finger at others, rather than accepting responsibility for the blame. And what does it really matter anyway? None of them can afford to pay for the damage they have caused.
    Its time for US to be responsible adults, and to take the “bat” away; to prevent them from doing it again.
    The bottom line is that government cannot continue to borrow to fund its spending. All others issues pale to this glaring reality. Sure, there is a lot of finger pointing, and “he said, she said”, but to solve the problem we need to address the biggest issue first.
    Every child dreams the starry-eyed vision of hitting the ball out of the park, but it is the American public that feels the “pane” of being broke, and ultimately pays the bill, regardless of who is responsible.
    We need players on plate that have the ability to “change the game”, not those who swing blindly at the ball. Any self-boasters that sport that “glazed and starry-eyed” approach to scoring on election day, need to be benched for the good of the team. Considering our current score (this late in the game) we cannot afford to cheer for “all talk and no action”.
    Pulling out of this slump is going to require determination and sacrifice. Sometimes a boy needs to put aside his grand visions, and simply “bunt”. Cut government spending, period. After all, the only way to score in the game, is to get a player across the plate. All of the arm-waving and dirt-kicking is merely hype to cover the fact that we are losing. Time to “man-up” and play the game right.

  • Fed Up

    I realize jobs are hard to come by, but giving people 99 weeks of unemployment benefits is absurd. Someone must pay for this. Employers will use the money intended for expansion and growth to pay back the loans, which equals no jobs.

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