UPDATE: Missouri seeks $260 million for jobless benefits

Monday, February 2, 2009 | 5:58 p.m. CST

 JEFFERSON CITY — The state is seeking to borrow as much as $260 million from the federal government to bail out an unemployment benefits fund that is expected to go belly up next week.

Unemployed workers should notice no difference in payments. But borrowing money from the federal government could mean hundreds of millions of dollars in additional fees for Missouri businesses.

Projections provided Monday to the Missouri State Unemployment Council show it could take until 2015 to pay back the borrowed money and until 2017 before the increased federal charges to businesses expire.

The council is proposing that lawmakers raise state unemployment fees on businesses to reduce the amount of money borrowed from the federal government and to avoid some of the mandatory federal surcharges needed to repay the loan.

Unemployment benefits are financed through special state and federal assessments on businesses that essentially amount to taxes.

Traditionally, Missouri's unemployment tax has risen in response to declining balances in its unemployment insurance fund. But that creates a natural lag time before the fund can be replenished.

The state also had to borrow hundreds of millions of dollars from the federal government when its unemployment fund became insolvent in March 2003 as a result of the last economic downturn.

In response, the legislature raised unemployment taxes on businesses and boosted the unemployment benefits paid to people as part of an effort to shore up the fund for the future. But the current recession — and rising unemployment rates — hit before the fund balance had been built up enough.

As of Friday, Missouri's unemployment fund had $35 million, said Lawrence Rebman, director of the Department of Labor and Industrial Relations. With the state paying out about $22 million weekly, the fund is expected to run out next week, he said.

Rebman sent a letter in late January to the U.S. labor secretary saying Missouri expects to need loans of $70 million in February, $120 million in March and an additional $70 million in April to make its payments to unemployed workers.

"The projections just keep getting worse," Rebman told the state unemployment council. "There's probably going to need to be more borrowing before the year ends."

Indiana, Michigan, New York, Ohio and South Carolina already have received federal loans to pay their unemployment benefits, according to the National Council of State Legislatures. Nearly all states are seeing declining balances in their unemployment trust funds.

Missouri's seasonally adjusted unemployment rate hit 7.3 percent in December, its highest mark in 25 years.

The state Labor Department projects unemployment to remain high for at least the next couple of years, resulting in the need for additional annual federal loans through 2012. The loans, with interest, are projected to cost more than $1 billion by 2016. The resulting federal surcharges on businesses are expected to amount to more than $1.1 billion.

A proposal by the state unemployment council would gradually increase the amount of state fees paid by businesses while also gradually increasing the benefits paid to unemployed workers. If adopted, it is projected to avoid about $100 million in federal loans and interest and shave nearly $769 million off the potential federal surcharge on Missouri businesses.

Barring another economic downturn, the council's plan also would build up the balance in the state's unemployment trust fund to about $982 million by 2017 — an amount that council members said would put Missouri's fund in a better position to withstand future spikes in unemployment.

The state council, which was created by a 2004 law, has recommended in the past that the unemployment trust fund should have a balance equal to 1 percent of the total annual payroll in Missouri. The council's plan is designed to accomplish that.

The council on Monday also heard a presentation about issuing bonds to build up the unemployment trust fund more quickly and avoid some of the federal loans and business surcharges. That bond process would have to start within the next few months to help pay off the federal loans before the end of 2009.


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