Employers face higher taxes if fund goes unfixed-WEB ONLY

  • Comments
  • Print

The federal unemployment tax rate paid by Indiana
employers might rise 38 percent next year if the state has not repaid all of the
hundreds of millions of dollars in loans it needs to keep paying jobless
benefits, a top official said yesterday.

Chief Financial Officer Scott Sanders of the Department of Workforce
Development told the Unemployment Insurance Board that if the state hasn’t
repaid its loans in full by Nov. 10, 2010, Indiana employers could pay about $59
million in additional unemployment taxes to the federal government. They’re
already expected to pay an estimated $214.5 million.

As of Monday, Indiana had borrowed $725.1 million from the federal government
to keep paying jobless benefits, and more borrowing is expected as the state
copes with a jobless rate that reached 9.4 percent, seasonally adjusted, in
February. Only four states, including Michigan and Ohio, have borrowed larger

Members of a legislative conference committee have been meeting to draft a
plan to fix the state’s insolvent unemployment trust fund that can pass both the
Republican-ruled Senate and Democrat-led House.

However, if a solution doesn’t pay back all of Indiana’s federal loans in
less than 17 months, Indiana employers could face higher federal unemployment
tax bills that will come due in 2011, Sanders told the board.

Board President Samuel Schlosser said it was necessary for the General
Assembly to find a fix for the bankrupt fund that avoided a higher federal tax

“Not only is it rough on employers, but it seems like it’s bad public policy
for our economic development efforts,” Schlosser said.

Sanders said Indiana could avoid a higher federal unemployment tax in one of
three ways:

– The state repays all of its federal loans in time and pays extra to cover
any additional loans.

– Indiana can show it has enough in its unemployment trust fund to pay all
benefits on time for the three months beginning Nov. 1, 2010, without any
federal loans.

– The General Assembly makes changes that increase the solvency of the state
unemployment trust fund by at least the amount of the additional federal taxes,
estimated at $59 million for 2010.

Senate President Pro Tem David Long (R-Fort Wayne) said yesterday it was
critical that lawmakers begin to solve the problem this session. He said he was
concerned that if they didn’t, the federal government would step in.

“I think that would be a disaster,” Long said.

Ed Roberts, vice president for labor and political matters for the Indiana
Manufacturers Association, said the federal government has never penalized a
state for having a bankrupt unemployment trust fund for too long.

“The feds don’t know how to do it and have never done it,” said Roberts, who
said he helped craft the fix the last time Indiana’s trust fund went insolvent,
in 1983.

However, Roberts said a two-year grace period for avoiding interest on the
federal loans expires in January 2011, two months after the repayment deadline,
so that’s an additional incentive for fixing the bankrupt state trust fund. The
federal stimulus package waived the interest on the federal loans for two

Fourteen states have used federal loans to keep paying jobless benefits. As
of Monday, Michigan had borrowed the most, $1.96 billion, followed by California
at $1.83 billion, New York at $1.19 billion, and Ohio, $772.6 million.

Indiana employers currently pay annual state unemployment taxes of 1.1
percent to 5.6 percent on the first $7,000 of an employee’s income. Employers
with a history of layoffs pay more. Sanders said the state unemployment taxes
brought in about $560 million last year.

The federal tax is currently 0.8 percent on the first $7,000 and could rise
to 1.1 percent next year if the federal loans aren’t repaid.

If federal loans went unpaid for additional rates, the federal tax rate would
continue to rise, going to 1.95 percent in 2011, 2.25 percent in 2012 and 5.47
percent in 2013.

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our updated comment policy that will govern how comments are moderated.