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Pence considers using surplus to pay off federal loan

August 3, 2015

Indiana Gov. Mike Pence is deciding whether to use about $250 million of the state's surplus to provide relief to local businesses by paying off a federal unemployment loan this fall.

If the loan is paid off by Nov. 9, the state's employers would save an estimated $327 million in penalties next year.

The governor's office and supporters of the plan say it would bring tax relief for job creators and ultimately help the state's economy, The Indianapolis Star reported. They say money would act as a loan to the unemployment insurance trust fund to pay off the federal debt, and then the fund would pay back the state.

But state Rep. Greg Porter, the Democratic fiscal leader in the Indiana House, believes the surplus generated by all taxpayers should be used in a way that would benefit residents.

He hopes Pence will consider allocating funds from the state's reserves, which reached $2.14 billion at the end of June, to roads and preschool education.

"With that surplus," Porter said, "I think it could help a whole lot of people."

The $250 million that could be used to pay off the federal unemployment loan also would be enough to make up the funding that school corporations are expected to lose in the new, two-year state budget approved this year by lawmakers. It also could cover the average salaries of 200 family case managers from the Department of Child Services for more than 30 years.

If the state decides not to use the money to pay off the loan, the state's unemployment trust fund should be able to pay it off by May. But the state's employers would face an increase in the penalty they pay for 2016, bringing the penalty to $126 per employee, compared to this year's $105 penalty.

Over the years, the General Assembly has taken action to make it more difficult for the state's reserves to reach the threshold that triggers an automatic taxpayer refund. The discussion whether to offer relief for Indiana businesses follows those moves.

The state's reserves for the fiscal year ending in June would've needed to be $103 million higher to trigger the refund. In accordance with state law, the reserves must constitute 12.5 percent of the budget before a refund is offered to taxpayers.

The unemployment fund could pay the state back early next year, according to state Rep. Dan Leonard.

"We're not taking taxpayer dollars and giving it to anybody. All we are doing is using some of our funds to avoid a penalty on employers in Indiana," Leonard said.

The loan was granted in 2008, when Indiana has to begin borrowing from the federal government to meet unemployment demands amid the recession.

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