DETROIT — States that borrowed billions of dollars from Washington to cover skyrocketing unemployment payouts during the recession now are cutting benefits, adding fees and, in some cases, increasing taxes on employers to raise the cash needed to repay the loans.
“This is not good news and the timing is terrible,” says Doug Roberts, a former Michigan state treasurer who leads Michigan State University’s Institute for Public Policy and Social Research.
Michigan is one of more than two dozen cash-strapped states facing looming deadlines to pay back almost $40 billion borrowed from the federal government. California, which has the largest outstanding balance, must repay some $8.4 billion.
To pay back the loans, some states are cutting benefits.
According to a new report from the Washington-based National Employment Law Project, six states have reduced the amount of the average unemployment check and the number of weeks someone can draw assistance in order to address insolvent trust funds.
In Florida, a new state law ties benefits to the health of the economy. As unemployment drops, the number of weeks a person can draw an unemployment check drops. Under the new rules, benefits could be cut to as few as 12 weeks — less than half the 26 weeks available in most states.
The change will save Florida an expected $100 million or more a year, helping the state make payments on its own $1.5 billion federal loan.
Some states have tightened eligibility requirements and enacted surcharges on employer tax bills — putting more pressure on businesses at just the moment the Obama administration is urging the private sector to create jobs.
Michigan, which has the nation’s third-highest jobless rate and owes the federal government $3.1 billion in unemployment loans, has a new “solvency tax” on employers.
“The most important thing the federal government and states can do is adopting policies that get people employed, decreasing the need for people to pull on the unemployment insurance,” Mr. Roberts said.
Businesses, Mr. Roberts said, are still trying to recover from the December 2007 to June 2009 “Great Recession.”
“Now we’re telling employers who are trying to hire people we are going to hit you with a higher tax because you have a history of laying people off. It’s discouraging people who want to come into states. A company looks at a state and says that’s a big problem here, and it might spread to me,” he said.
Michigan plans to make its $106 million to $108 million payment due Sept. 30 by drawing up to $41 million from the state’s general fund. The rest will come from the solvency tax on Michigan employers that is expected to generate $47 million. Another $20 million will come from an unemployment penalty and interest account, according to Steve Arwood, director of the Michigan Unemployment Insurance Agency.
An estimated 20 percent of Michigan employers will be affected by the solvency tax, which is triggered when a business pays less into the unemployment compensation trust fund than the Unemployment Insurance Agency has paid out to its laid-off workers.
Billion-dollar-plus federal bills also are coming due in New York, $2.8 billion; Ohio, $2.6 billion; Illinois and Indiana, $1.8 billion each.
In Indiana, businesses have paid nearly 45 percent more in employer taxes this year, according to the Associated Press, under that state’s plan to fix the bankrupt unemployment insurance fund.
Mark Everson, commissioner of the Indiana Department of Workforce Development, said his state plans to make its $60 million federal loan payment on time.
“It’s true that employers are skittish about hiring at this stage, but I don’t think it’s because of the adjustment in the employment insurance premiums,” Mr. Everson said.
“When I talk to employers, they are more focused on the leadership out of Washington, frankly, not the unemployment insurance piece.”
Indiana, he says, is on track and holding the line, not asking for relief from Washington.
But he acknowledged this emerging debt burden is a mounting problem across the country as states struggle to keep themselves afloat economically in a stubborn jobs climate.
“Some states have had to plug huge budget gaps, and I imagine it’s a tough issue for those who have failed to step up and do a good job of addressing these challenges,” Mr. Everson said. “We think we have done the right thing. Nobody is happy about it, but it’s been accepted as necessary.”
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