State forestalls loss of federal tax credits for businesses

JEFFERSON CITY, Mo. -- Missouri businesses have avoided tax penalties because the state has successfully gone three months without borrowing from the federal government to pay out unemployment benefits.

When the economy soured several years ago, the state's unemployment trust fund began running out of money, and the state had to borrow from the federal government to continue paying jobless benefits. The borrowing occurred periodically from 2003 to April 2005.

To avoid losing a federal tax credit for businesses and employers, the state negotiated a deal in 2005 with the U.S. Department of Labor. The agreement required the state to pay back about $50 million, barred the state from borrowing between Nov. 1, 2005, and Feb. 1, 2006, to pay unemployment claims and required the balance in the unemployment fund to increase by $50 million.

In a written statement Thursday, Katharine Barondeau, the acting director for the Department of Labor and Industrial Relations, said the state had successfully passed the Feb. 1 deadline without additional borrowing. She said the state was able to do so because an improving economy reduced the demand for unemployment benefits.

Missouri still owes $238 million from its previous borrowing and could again face the loss of business tax credits by the middle of 2006.

"The possibility of losing [the tax] credits is an occurring issue for us until the debt is repaid," said Tammy Cavender, a spokeswoman for the department.

Cavender said state officials were examining several options for paying off the debt, including refinancing and working out another deal. She said the next deal would include stiffer terms to bring the state closer to paying the full debt.

Federal law has forced Missouri to regularly pay the interest on the outstanding debt. Since September 2003, Missouri businesses have made $29.6 million in interest payments.

Last year, the legislature passed a law creating a council to recommend alternative financing options to pay off the debt.