Missouri starts paying interest for borrowing for unemployment

JEFFERSON CITY, Mo. -- Missouri has started paying interest to the federal government for several hundred million dollars it has borrowed during the past couple years to provide unemployment benefits for state residents.

Employers in Missouri paid a special assessment for the state to make its first $23 million interest payment to the federal government. Officials said Missouri has been required to borrow to shore up its unemployment trust fund since February 2009 and currently owes about $725 million.

Based on projections from current figures the interest payments could continue in Missouri until 2016, The Missouri Department of Labor and Industrial Relations said.

Unemployment benefits are financed through state and federal assessments on businesses. When state funds run out, they can borrow from the federal government to pay unemployment benefits. The federal government then can recoup the loans by increasing taxes that businesses pay.

States across the country have borrowed from the federal government to shore up their unemployment funds as more people filed for jobless benefits during the recession. In all, 27 states owe the federal government almost $38 billion. States were required to make their first interest payments by the end of September. The interest charges had been delayed for two years by the 2009 federal economic stimulus legislation, but Congress has not approved extending that delay.

During Missouri's recent borrowing for unemployment benefits, the state's jobless rate climbed above 9 percent before dipping to 8.8 percent in August. The state also borrowed periodically from 2003 to April 2005.

As Missouri pays back the money it has borrowed, employers could end up paying more federal unemployment taxes. If the current federal loan is not repaid by Nov. 10, the federal government could start reducing tax credits businesses receive to offset their payments to the unemployment system. Each year, those tax credits would be reduced by a greater amount, increasing the costs for businesses.

"It's one more expense that they have to add to the bottom line for a business when businesses are in a stressful time," said Rich AuBuchon, the general counsel for the Missouri Chamber of Commerce and Industry.

To avoid losing any federal tax credits for their businesses because of borrowing for the unemployment system, Texas and Idaho issued bonds to pay off their federal debts. Some would like Missouri to use a similar strategy to wipe clean its slate of federal debts and then recoup the costs from businesses.

Ray McCarty, the president of Associated Industries of Missouri, said business groups have been talking about the issue with state officials. McCarty said the affect of the lost tax credits increases with time.

No matter what, businesses face decisions that could cost money.

"When it comes to fixing this trust fund, there is going to be bad solutions and worse solutions," said Brad Jones, the state director for the National Federation of Independent Businesses.