Eight states ask for more time to repay federal government for unemployment benefit loans
Eight states wrote to the federal government on Tuesday asking for more time to repay interest on loans they took to pay unemployment benefits during the pandemic.
States had until September 6 to repay the Treasury Department the money they had borrowed to supplement their own UI funds. After this deadline, 10 states still had outstanding balances and began to accumulate interest.
Previous coverage: These 10 states owe default interest on their federal unemployment benefit loans
“We believe the waiver period was initially determined on the assumption that the pandemic would likely be over and the economy and state governments would be in recovery mode,” wrote finance officials from the eight states. in a statement issued by Illinois Comptroller Susana Mendoza.
“However, it is quite clear to see that this public health crisis is not over, and the benefit of this waiver of interest is still needed.”
The declaration had New York, Colorado, Pennsylvania, Connecticut, New Jersey, Massachusetts and Minnesota as co-signers.
“These are states that have suffered the brunt of the pandemic and have done their best to protect their populations by putting in place restrictions, and have ended up with a fairly large deficit,” said Andrew Stettner, senior researcher at the Century Foundation. “There is a political rationale for saying, we want to give you a little more time to get your economy back on track and reduce the loan balance.”
Conversely, Stettner told MarketWatch: “These are states that have not saved enough for a recession of any magnitude. “
It’s not uncommon for states to borrow from the federal government during a bad recession, or have a grace period before they have to start paying it back. What is concerning is the significant overlap between states that were in a similar position emerging from the Great Recession and into 2021.
If anything, the problem is more “concentrated” now among states that have failed to move forward with reforming their unemployment insurance systems or to put money aside for the next downturn. In 2009, 36 states owed roughly the same amount as the 10 holdouts in September, or roughly $ 45 billion.
It makes it difficult for the federal government to take action to accommodate the demand, Stettner said – even though there was a mechanism for that to happen, which it doesn’t.
“What I would like to see is that if the federal government gave money for this, it should come with strings,” he said. “Some states will be insolvent over and over again because their system is broken. You must have a federal hook to require them to do this. “
Illinois owes the federal government $ 4.5 billion, according to the Mendoza statement. With an interest rate of 2.27%, the state has accrued $ 19.6 million in interest since the waiver expired and after paying $ 6.3 million in September.
Colorado Comptroller Robert Jaros said his state owed $ 1 billion, with nearly $ 4 million in accrued interest expected to exceed $ 20 million if not paid within a period of time. a year.
As large as those balances may seem, payroll taxes to repay accrued interest are typically less than $ 100 per worker per year, Stettner said. However, some states, including Texas, Louisiana, Kentucky and Iowa, chose to use their US bailout funds to pay off federal loans they took out, rather than raise taxes.