Subscriber Benefit
As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowImagine racking up nearly $3 million in debt every day. That’s more than
$100,000 an hour, or about $2,000 a minute.
Indiana is diving deeper into debt as it struggles to pay jobless benefits
from its bankrupt unemployment insurance fund, which is paying out hundreds of
millions more than it collects in taxes from employers. The state is now on
track to owe the federal government $1.2 billion by year’s end.
The scope of the problem is so huge that even if lawmakers quickly agree on a
way to rebalance the off-kilter fund, it could take years – or possibly a decade
– for the account to repair itself.
“As the situation grows steadily each day, it is a very realistic time frame
to look at eight to ten years,” said Rep. David Niezgodski, a Democrat from
South Bend who chairs the House labor committee.
Like someone trying to dig out from credit card debt, Indiana’s first
priority is to stop going further into the red, said Sen. Dennis Kruse (R-Auburn). The next step is to repay the money it owes, and then the state can
start to build up savings to prepare for the next economic downturn.
Fixing the fund within one or two years would require what some are calling
impossible sacrifices – slashing jobless benefits or raising taxes on employers
so high that it could drive some out of business.
“It would shatter our economy,” Niezgodski said. “It’s not feasible.”
Companies, which pay jobless taxes on a per-worker basis, could see their
unemployment insurance taxes go up 300 percent or more if lawmakers demanded an
immediate fix, said Kevin Brinegar, president of the Indiana Chamber of
Commerce.
“To raise the kind of money it would take to fix it in one or two years would
be devastating to employers and employees,” Brinegar said. “This is a very
delicate balance that we’re going to need to strike.”
Both Republicans and Democrats in the Statehouse say lawmakers must act
during this legislative session to restore the account, which took in $579
million last year and paid out $986 million. The fund – kept separate from the
state’s main checking account – is expected this year to distribute $900 million
more than it collects.
The problem gets worse as more people lose their jobs. Nearly 320,000 Indiana
residents were looking for work in January – nearly twice as many as a year
before. The unemployment rate rose to 9.2 percent in January, compared with 4.8
percent at that time last year.
Many think the only fix for the fund is some combination of raising employer
taxes, tightening eligibility and cutting benefits. The state’s maximum benefits
of $390 a week are already lower than all surrounding states except Michigan,
and some lawmakers are wary of lowering the safety net for unemployed residents.
Legislators are also trying to avoid hefty tax increases on employers that could
force them to go out of business, costing the state even more jobs.
No party wants to be alone in supporting politically unpopular proposals.
Republican Gov. Mitch Daniels hasn’t offered a specific solution, and political
bickering in the Democrat-controlled House stalled a plan there. The GOP-Senate
has now taken up the issue.
Senate Minority Leader Vi Simpson said the Senate should pass a proposal
quickly so the issue can move to a conference committee, where Republicans and
Democrats from the House and Senate can seek a compromise that would draw votes
from all sides.
“We need to find a solution immediately,” said Simpson (D-Bloomington). “Every
minute we wait, we are going farther and farther in the hole.”
So far, Indiana owes the federal government about $470 million. The amount
borrowed daily fluctuates depending on claims filed and taxes collected. But the
predicted debt of $1.2 billion by the end of the year averages to about $3
million a day since the state started relying on the federal government in
November.
“It’s basically a continual draw,” said Marc Lotter, a spokesman for the
Department of Workforce Development. “When we go to pay benefits every day,
funds are withdrawn.”
Ten states are borrowing money from the federal government to pay
unemployment claims. Michigan owes the most – $1.4 billion – followed by New
York ($565 million), California ($473 million) and Indiana, according to Feb. 27
numbers from the Department of Workforce Development.
Interest on the federal loans is considered paid thanks to the federal
stimulus package. And some hope the federal loans might eventually be forgiven.
But Indiana lawmakers know they need to fix the account’s structural imbalance,
and they fear the federal government will step in if they don’t act soon.
“The federal government wants you to have a plan to get out of this mess,”
said Kruse, who heads the Senate labor committee. “As long as we have a plan
that’s acceptable to the federal government by the end of session, that will be
a big plus. I think that’s achievable.”
The legislative session ends April 29, and Indiana will likely be even
further in debt by then.
Kruse said the best fix for the system is a healthy economy, which would mean
fewer people collecting benefits and more money coming into the account.
“It’s our hope that that will happen sooner rather than later,” he said.
Please enable JavaScript to view this content.