State Government and State Budget and Unemployment and Unemployment Taxes and Government

Indiana loans for jobless to hit businesses Jan. 1

October 14, 2010

The state will begin paying millions of dollars in penalties and interest to the federal government next year because it has borrowed nearly $2 billion to pay for jobless benefits, an Indiana unemployment official says.

Scott Sanders, deputy commissioner of the Department of Workforce Development, told lawmakers and other members of the Unemployment Insurance Oversight Committee on Wednesday that the state will have to pay $80 million to $100 million in interest in 2011. The first payment of about $60 million will be due Sept. 30.

The Journal Gazette of Fort Wayne and The Times of Munster reported that Indiana businesses in January also will begin paying a penalty of $21 per worker because Indiana has not yet repaid the loans. The business penalty increases by $21 per worker per year until the loan is nearly paid off.

Businesses pay taxes into an unemployment insurance trust fund based on their histories of layoffs and the wages they pay, and the fund provides jobless benefits. However, Indiana's fund went broke in late 2008 and the state has had to borrow federal funds since then. It currently owes $1.8 billion, a number expected to reach $2 billion by the end of the year.

Nationally, more than 30 states owe $40 billion to the federal government.

Sanders said Indiana has not had to pay interest on the loans until now, but that will change Jan. 1.

Gov. Mitch Daniels and some lawmakers hope the federal government will take action to relieve states of the loan penalties and interest, which cannot be paid out of states' trust funds.

However, Douglas Holmes, president of the National Foundation for Unemployment Compensation and Workers' Compensation, told the committee that President Barack Obama's proposed budget includes taking in $2 billion in anticipated interest payments from Indiana and other states.

State Sen. Brandt Hershman, R-Lafayette, complained the federal government can use the interest and penalties paid by Indiana taxpayers and businesses for any purpose.

"The federal government is in essence finding a backdoor way to spend more money by forcing the states to pay more money," Hershman said. "I think it's outrageous behavior."

Hershman said he hopes Congress will pass a law delaying the penalties and interest payments when it returns to Washington, D.C., after the Nov. 2 elections.

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