Missouri's debt to feds coming due

Businesses could pay higher taxes if the state's payment plan doesn't satisfy federal bill collectors.

JEFFERSON CITY, Mo. -- About 50,000 Missourians receive weekly unemployment checks from the government. The intent is to help people pay their bills after getting fired or laid off.

Yet Missouri's unemployment checks would themselves bounce, were it not for the federal government.

The state fund from which jobless benefits are paid went belly-up about two years ago, and to keep the checks flowing, the state has been borrowing money from the federal government.

Missouri's tab has grown to $380 million. And now it's coming due.

Unless Missouri comes up with a repayment plan to satisfy the federal bill collectors, the U.S. government will impose a multimillion-dollar tax increase on Missouri businesses to start recouping its money.

Gov. Matt Blunt has until Friday to submit the state's proposal to the U.S. Department of Labor. State Employment Security director Katharine Barondeau says an application has been drafted by her division. Blunt said Friday that he had not yet reviewed it.

Should the state's plan get rejected, Missouri would join New York as the only states being penalized by the federal government because of their unemployment fund debt, according to the Associated Industries of Missouri.

Temporary unemployment benefits have existed since 1951. They are funded by special state and federal assessments on businesses, which essentially are taxes.

Traditionally, Missouri's unemployment tax has risen in response to declining balances in its unemployment insurance fund. But the reaction has resulted in a natural lag time before the fund can be replenished. The economic downturn of the early 2000s proved too much for the fund to handle.

Down to 48,000 people

In June 2003, shortly before the state's borrowing spiked, about 70,000 people were receiving weekly jobless benefits, according to figures from the Employment Security Division. That figure had fallen to a little more than 48,000 by this June, but the debt remains.

The legislature attempted to fix the problem last year, passing a bill that raised unemployment taxes to try to replenish the fund. The new law also authorized the state to issue bonds to pay off the federal debt.

But the bonds never were issued, because the law required the bonds to be paid off by January 2008 -- a deadline so soon that it would have required an annual employer tax increase so large that it would have triggered a constitutionally mandated statewide vote.

The bottom line is that Missouri businesses this year are paying an average unemployment tax of about $286 per employee to the state, said Jim Kistler, executive vice president of Associated Industries of Missouri.

Missouri businesses also pay a federal unemployment tax of about $56 per employee, Kistler said. That federal tax would rise by about $21 an employee -- generating an estimated $52 million for the federal government -- if Missouri does not qualify for a federal exception to the penalties. An even larger tax increase would kick in the next year.

As part of its application due Friday, the state must show that it has passed legislation to improve the bottom line of its unemployment fund. That part has been accomplished. The state also must repay the nearly $92 million it has borrowed from the federal government this year. That also will get done, Barondeau said.

Additionally, the state must repay the federal government a portion of the debt equal to the penalty the federal government would otherwise impose on businesses in the form of higher taxes. That projected $52 million payment also should be achievable, Barondeau said.

A final criteria stipulates that the state's unemployment fund cannot borrow any additional money from the federal government until February 2006. That's where Missouri could run into trouble.

"Our current projections do not indicate we could pay [unemployment] benefits through Feb. 1 without borrowing," Barondeau acknowledged.

Yet the new shortfall is relatively small -- perhaps less than $10 million -- when compared with the borrowing the state already has done. The state hopes it can cover that amount through some short-term financing, perhaps a commercial loan or line of credit. It's also possible that the economy could improve enough that unemployment claims would not drain the fund.