Business groups want state to issue bonds to repay $825 million it borrowed to cover unemployment benefits

Monday, March 28, 2011
Workforce specialist Karla Pfefferkorn assists Ronald Schoffner on Friday as he files a new unemployment form at the Missouri Career Center in Cape Girardeau. (Fred Lynch)

EDITOR'S NOTE: The Missouri Chamber of Commerce and Industry is asking the 2011 legislature to pass reforms in six areas that will make Missouri a better state to do business in. This occasional series explores those areas -- minimum wage, employment law, workers' compensation, franchise tax, lawsuit reform and unemployment fund. This is the fifth story in occasional series exploring those issues.

CORRECTION: The state's listed as having lost their FUTA credits have been corrected.

Missouri's Unemployment Insurance Trust Fund is bankrupt.

The state has borrowed $825 million from the federal government to pay its unemployment claims. If it doesn't pay these loans back by November, Missouri businesses will lose federal tax credits.

Finding a way to pay back the loans and preserve tax credits is part of the Missouri Chamber of Commerce and Industry's Fix the Six legislative agenda.

Business groups want the state to issue bonds to repay its federal unemployment loans.

If the loans aren't repaid, the federal government will take away tax credits and use the taxes collected to pay off the state's debt.

Employers can expect a reduction in Federal Unemployment Tax Act (FUTA) credits amounting to a tax increase of $21 per employee next year. That amount will double the next year and triple the year after that.

Bonding is a better option, said Brad Jones, state director of the National Federation of Independent Businesses. Issuing bonds will result in lower interest payments and keep tax credits intact for Missouri businesses.

"We're not the only cowboys at this rodeo," Jones said. "There are close to 30 states that owe the Unemployment Trust Fund. They're all handling it in different ways."

Businesses in Michigan, South Carolina and Indiana have already lost their FUTA credits. Texas recently issued bonds to pay back its federal unemployment loans.

Missouri's Board of Unemployment Financing has the statutory ability to issue bonds for up to 10 years to repay federal loans.

Tracy King, vice president of governmental affairs with the Missouri Chamber, said business groups have been told by Gov. Jay Nixon's office that principle and interest payments on a 10-year-bond would exceed the provisions that limit the growth of state spending under the Hancock Amendment to Missouri's constitution.

Nixon's office did not respond to requests for comment Friday.

House Bill 163 would remove the 10-year bonding limit and allow the state to continue receiving federal unemployment benefit funds through 2013.

The measure, sponsored by Rep. Barney Fisher, R-Richards, was approved by the House and is now being debated in the Senate.

"By approving this legislative fix, it will allow for a smooth funding stream to the Unemployment Trust Fund to pay off the money owed so that those who are unemployed will continue to receive unemployment benefits they need," King said.

Opponents are concerned that without a limit on the bond term, the bill gives the business community a blank check.

"Employers of today need to pay for unemployment costs of today," said Sen. Jason Crowell, R-Cape Girardeau. "If the state allows 50 year bonds to be issued, then we will have employers who haven't even been born yet that will be responsible for paying for today's unemployment costs. Is that fair? I don't think so."

Business groups don't think it is responsible for the state to carry bonds more than 10 years either, King said.

"We are just trying to take the argument for not bonding off the table, so we can have some real discussions," King said. "We know we have to pay this money back either way. By not bonding, businesses will pay more interest."

Crowell disagrees with the governor's office, saying he believes issuing 10-year bonds does not violate the Hancock Amendment.

There also hasn't been enough analysis done to compare the cost of issuing longer-term bonds to the costs businesses will face if their FUTA credits are reduced, Crowell said.

House Bill 163 also extends Missouri unemployment benefits from 79 weeks to 99 weeks.

Both King and Crowell agree it is important for Missouri's economy that people continue receiving unemployment benefits.

In February, the state's unemployment rate was 9.4 percent.

"The whole problem with the unemployment compensation system is that it's more expensive right now than what is funding it," Crowell said. "The unemployment tax on employers is not generating enough money to fund the benefits."

Jones, who represents 9,000 members of the NFIB in Missouri, said repaying the federal government by bonding would ease the pain the state's businesses are already feeling as the economy sputters along.

"I think most people would agree that it is better for our state if Missouri employers spend money on hiring employees, providing benefits and making additional investments to grow their businesses, rather than paying for interest and lost FUTA credits that could be avoided through this responsible fix," King said.

A total of 32 states have borrowed $46 billion to pay their unemployment claims from the Federal Unemployment Account as of Wednesday, according to the U.S. Department of Labor.

"The federal government is borrowing this money from China. Putting it on the national credit card when we already have a $14 trillion national debt," Crowell said.


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