INDIANAPOLIS (AP) — Republican Gov. Mike Pence said Thursday that Indiana
will pay off recession-era loans owed to the federal government, which
would have penalized employers for the sixth consecutive year had the
state not taken action.
The governor said about $250 million will be borrowed from Indiana's
surplus to make good on the debt, which was taken out to make unemployment
payments after the state drained its own unemployment fund when the
jobless rate topped 10 percent during the most recent recession. The state
reserves will be replenished this spring through unemployment insurance
payments made by employers.
By paying off the federal loan in the coming weeks, the state will spare
employers from paying a penalty that has slowly increased and would have
cost employers $126 per worker next year.
"Like many states, Indiana had to borrow money from the federal government
to pay unemployment insurance benefits during the so-called great
recession," Pence said, adding that the plan "will take $327 million
dollars in new tax penalties off the table and off the books."
Businesses say the additional money will can be reinvested in workforce
training or used to give employees raises now that the job market is more
competitive.
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.
Sen. Luke Kenley said lawmakers drained the fund to a level they thought
was adequate but "the recession of 2008 was so enormous that it wiped that
out."
"Almost every state in the union, to my knowledge, had to get a loan from
the federal government", he said.
It is now believed the unemployment fund should hold between $750 million
to $1 billion in reserve, Pence said Thursday. 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.
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.
The Republican-dominated Legislature approved a package in 2011 that
increased business taxes and cut some jobless payments in order rebuild
the unemployment fund.