State plans $250M payment to settle unemployment loans

BLOOMINGTON, Ind. (AP) — State officials are planning to use about $250 million from Indiana’s surplus to finish repaying federal loans that were taken out to make unemployment payments as the state’s jobless rate topped 10 percent during the recession.

Department of Workforce Development officials told the State Budget Committee on Friday that paying off the loan by Nov. 10 will save Indiana businesses a projected $327 million next year by eliminating a $126-per-employee penalty they would otherwise be charged.

Officials expect to restore the withdrawal from the state’s $2 billion cash reserves by transferring money next spring from taxes paid by businesses into the unemployment fund.

Republican Gov. Mike Pence has the final say on the action, but GOP and Democratic legislators on the budget committee endorsed the plan.

Democratic Sen. Karen Tallian of Portage said that for several years she has wanted steps taken to settle the federal loans, which began in 2008 and ultimately reached $2 billion. Tallian said it was important to eliminate the per-employee penalty that has grown by $21 a year to reach $105 for 2015.

“We will be able to put that money back into Indiana’s economy,” she said during the Budget Committee’s meeting at Indiana University.

The move is important because “the penalty is a tax on hiring” and a drag on the state’s economy, Pence’s Office of Management and Budget director, Micah Vincent, told the Indianapolis Business Journal.

Pence first raised the possibility of paying off the federal loans early when he announced in July that state government finished the fiscal year that ended June 30 with cash reserves of $2.1 billion, or about 14 percent of state spending.

Barbara Quandt, the Indiana director of the National Federation of Independent Business, said the penalty payments have been “a huge problem” for many employers and kept them from making other decisions about hiring or expanding.

“For small businesses, it will mean keeping the money in their companies for raises and new employees, for equipment, for other costs,” she said.

The unemployment fund wasn’t always in trouble as it had a surplus of $1.6 billion in 2000. But lawmakers raised benefit payments for the unemployed and lowered employer premiums, draining the account, and the recession compounded the problem as Indiana’s jobless rate reached 10.8 percent in mid-2009. The state’s unemployment rate has since fallen to 4.6 percent.

The Republican-dominated Legislature approved a package in 2011 that increased business taxes and cut some jobless payments in order rebuild the unemployment fund.

The Department of Workforce Development projects the fund’s reserves will grow to about $650 million by the end of 2018 as long as there isn’t an economic downturn.

Senate Appropriations Committee Chairman Luke Kenley, R-Noblesville, said that was a necessary step.

“We need to rebuild our unemployment fund to a level so that we’re if we’re faced with a catastrophe in the future, we’re prepared,” he said.