10 states failed to repay their unemployed loans before the interest deadline
At least four states have repaid the money they borrowed from the federal government last week to cover unemployment benefits, narrowly avoiding the extra interest on the loans.
Hawaii, Nevada, Ohio, and West Virginia announced loan repayments over the past week. According to the Treasury Department, 10 remaining states have a combined outstanding balance of more than $ 45 billion on which they will now begin to accumulate interest.
When states deplete their unemployment trust funds, they are allowed to borrow money from the federal government to ensure benefits continue to flow. Twenty-two states took out what are known as Title XII advances in 2020. The loans were initially interest-free, but as of Monday, states with outstanding loans began to accumulate 2.3% of the loan. interest on sums borrowed.
States that have announced refunds are:
- Ohio repaid $ 1.5 billion.
- Hawaii repaid $ 700 million.
- Nevada repaid $ 335 million.
- West Virginia repaid $ 185 million.
Officials in those states said they acted before Monday’s deadline to avoid negative economic impacts on businesses. Several states have reported using federal funds allocated through the American Rescue Plan Act to repay borrowed funds.
Hawaii used a combination of federal funding – $ 39 million in CARES funding and $ 700 million in ARPA funding – to fully repay the borrowed amount. The state, where the tourism industry was hit hard during the coronavirus pandemic, has paid more than $ 6.4 billion in unemployment insurance benefits, Ministry of Labor and Industrial Relations officials said. .
Unemployment benefits are paid by taxes that states levy on businesses. When unemployment trust funds run out, federal and state laws trigger higher business tax rates for employers to replenish the funds. The 10 states with overdue loan balances, California, Colorado, Connecticut, Illinois, Massachusetts, Minnesota, New Jersey, New York, Pennsylvania and Texas could be on the verge of seeing big tax hikes for employers next year if they don’t pay back the money. before the increases are triggered.
In Nevada, lawmakers approved the use of $ 335 million of local and state coronavirus recovery funds allocated by ARPA to repay borrowed unemployment funds.
Paying off the loan before interest starts to accumulate puts the state in a good fiscal position, said Heidi Saucedo, spokesperson for the state’s Ministry of Employment, Training and Rehabilitation. .
“We can start building our trust fund to prepare for the future while keeping the rates manageable for employers,” she said. “A stable trust fund will [the department] to provide timely benefits to those who lose their jobs through no fault of their own.
Ohio has also sought to avoid an increase in employer taxes by postponing the reimbursement. Governor Mike DeWine said the state used $ 1.5 billion in ARPA funds to repay the loans.
“By paying off this loan in full, we are ensuring that Ohio businesses do not see an increase in their federal payroll taxes on unemployment,” DeWine said in a statement. “Without this additional tax burden, our employers can invest more money in their businesses and hire more people.”
According to Steve Stivers, president of the Ohio Chamber of Commerce, employers in the state would have had to face a 50% increase in federal payroll taxes on unemployment next year if the loan had not been reimbursed.
West Virginia used a combination of CARES funding and employer payments to repay the $ 185 million it borrowed. The state was also able to put $ 220 million back into its unemployment trust fund, a move that state officials said would cut employer contributions by 25%.