Lawmakers mull early payoff that could save businesses $327M

March 16, 2015

The state is on track to pay back $2.2 billion in federal unemployment loans in May 2016—roughly four years earlier than originally projected.

And a key lawmaker says that payoff could happen yet this year—a move that would save Hoosier businesses about $327 million in federal penalties—if legislation now moving through the General Assembly becomes law.

Rep. Dan Leonard, R-Huntington, helped write the 2011 law that raised taxes on businesses and reduced benefits for out-of-work Hoosiers to try to bring the state’s unemployment trust fund back into balance. He said paying the loans back could be a spark to the economy.

Leonard expects businesses would use the savings to hire more people.

“It’s tremendous,” Leonard said. “It’s huge when you talk about the savings to employers and what they can do with that money and stimulate the economy.”

The new projected payoff date is the result, in part, of a reduction in both the number of people who are signing up for unemployment benefits as well as the length of time they stay on the program.

But Leonard said making the final loan payment before the end of 2015 has huge benefits. That’s why lawmakers are debating whether to use some of the state’s $2 billion surplus—as well as proceeds from a proposed tax-amnesty program—to move up the payoff date.

At issue is an extra $126 per employee that Hoosier companies will pay to the federal government in 2016 if Indiana has an outstanding unemployment loan on Jan. 1 of that year. If a payoff takes place by the end of 2015, that extra payment goes away.

Joe Frank, a spokesman for the Indiana Department of Workforce Development, said the state hasn’t made any final decisions about paying the loan off yet this year.

“We actually look every single session at the balance and what’s left and whether we could pay it off,” he said.

But Frank acknowledged the savings would be significant if it could be done. For every year the state has an outstanding loan balance, the federal government tacks on another $21 per employee, a number that has compounded since 2011 and reached $105 this year.

Those payments come on top of the standard $42 per employee that all companies pay the federal government for unemployment insurance, plus payments they make to the state system based on their layoff histories. Companies that have used the system by laying workers off pay higher rates than those who haven’t.

The state is also imposing a surcharge—which fluctuates with interest rates—that generates revenue to pay the interest on the federal loans.

Currently, the state owes the federal government about $879 million, according to the U.S. Department of Labor. Recent projections show the state will still owe about $369 million at the end of 2015, although Leonard said the final number could be lower if employment trends continue.

He said state lawmakers are considering several options to help pay that loan off quickly. Among them is a proposed amnesty program—part of House Bill 1349—that would allow delinquent taxpayers to pay up without penalties. The amnesty period would last just eight weeks but could generate $109 to $159 million, according to Legislative Services Agency estimates.

Leonard said lawmakers are also debating whether to let the Pence administration borrow from state reserves to pay the rest of the loan by Dec. 31. Unemployment payments that companies are making to the state would then be used to replenish the reserves, which currently top $2 billion.

The state payments are part of the unemployment overhaul the General Assembly passed in 2011, a decade after the fund’s benefits payments began exceeding its tax revenues. A surplus in the unemployment trust fund made that imbalance possible for years. But the state was eventually forced to borrow.

The 2011 law forced business to pay about 80 percent more in total taxes than they had in 2010. That took effect as soon as the legislation passed.

The law also reduced benefits for unemployed Hoosiers by roughly 20 percent overall. The impact on individual workers or businesses varied, however, and those workers who had earnings of more than $43,000 annually have been unaffected. The benefits cuts took effect in 2012.

Leonard said the fund will need to become more stable before lawmakers talking about lower state unemployment payments for businesses or higher benefits for workers.

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