Indiana forced to take out $1B loan to pay unemployment benefits

Indianapolis - The fund designed to help Indiana's unemployed is bankrupt, and it's a problem that must be fixed. That effort is underway right now.

Earlier this year, the Indiana House of Representatives passed bill number 1379 to help pay for the fund that issues checks to unemployed Hoosiers. But now a summer study committee is reporting that there is a problem. The federal government says part of the bill which requires compliance centers is non-conforming. That means Indiana must adjust its plan before the law goes into effect next year.

The state has already borrowed $1.1 billion to meet payments. By the end of 2010 it will be up to $2.7 billion.

"Federal law provides that we would continue to pay benefits as we go into bankruptcy. We would borrow a loan from the federal government and Indiana right now is at $1.12 billion. That's the current drawdown that we've got on the fund. That number has pretty much been steadily increasing the borrowing with the exception of a short time where I think it ticked up barely when we saw the first quarter tax receipts. It's the largest tax receipt of the year so we wouldn't expect that to happen again," said Josh Richardson, Indiana Workforce Development.

The Indiana Department of Workforce Development said Wednesday that the state had been expected to stop borrowing from the federal government by 2012. But newer, less optimistic unemployment projections predict it will now be 2015 before the state can stop borrowing, and then it will take several more years to pay back the federal loans. The state wouldn't start paying interest on the loans until 2011.

"The picture is much worse," Richardson said.

Indiana has been paying out hundreds of millions of dollars more in jobless benefits than it has been taking in through taxes. The tax increase on employers is expected to raise about $300 million in additional money each year to help turn the fund around.

But the federal government plans to begin charging interest on the state's loans in 2011, and can begin raising federal taxes on employers that year that would compound annually until the loans are repaid.

State Rep. Russ Stilwell, D-Boonville, said the unemployment bill passed this year was not designed to fix the problem immediately.

"It's a fix that stops the bleeding and hemorrhaging, and it's still going to bleed," he said. "We were very clear about that. It's a long-term black hole."

Indiana is not alone. Currently 21 states and territories including Indiana are borrowing from the federal government. The current debt is $14.3 billion. By the end of the recession it is anticipated that 33 states will borrow at total of $50 billion.

source: http://www.wthr.com/Global/story.asp?S=11099200