Mike Klein Online

Obama Proposal Would Temporarily Forgive Federal Interest Payments

Mike Klein

The Wall Street Journal reported Wednesday that President Barack Obama will propose to waive interest and penalty payments for two years on billions of dollars in federal loans that states have needed to write unemployment compensation benefit checks.

The Journal said Obama’s fiscal 2012 budget that will be released next week would also propose to more than double the amount of employee wages that are subject to unemployment taxes in an effort to help states rebuild their depleted unemployment insurance accounts.

These two ideas floated by the White House acknowledge states are having a terrible time paying unemployment benefits. Thirty states and the Virgin Islands have $42.3 billion in outstanding Federal Unemployment Account loans.  Georgia had $634 million in outstanding loans through Monday.

The Journal said Capitol Hill Republicans reacted with “hostility” to the increased taxes proposal.

Last week federal officials reported the national unemployment rate declined by four-tenths to 9.0% in January.  But another number received less attention: 9.3 million receive unemployment benefits. The number of Americans on benefits equals almost the entire population of Georgia.

“No one knew or prepared for this type of recession,” said Diana Noel, committee director for labor and economic development at the National Conference of State Legislatures (NCSL).

California, with 12.3% unemployment and its population of 37 million, has borrowed the most, $9.9 billion since January 2009. Michigan has borrowed the longest, $3.7 billion since September 2006. New York and Pennsylvania borrowed more than $3.2 billion. Five states – Florida, Illinois, Indiana, North Carolina and Ohio – borrowed between $2.0-and-$2.6 billion.

Under current regulations — meaning before the new White House proposal — states will be required to repay these federal loans, plus 4% interest. Texas sold $2.1 billion in bonds last year to repay its loan and replenish the state trust fund. Georgia is considering that same option, said new labor commissioner Mark Butler. So is Michigan. Tennessee repaid $20.7 million last June to join Texas as the only other southern state without a loan balance.

Georgia borrowing will accelerate through the first quarter and Butler predicted it could reach $820 million in April. Georgia has the 16th highest loan balance nationally and the fifth highest among southern states behind North Carolina, Florida, South Carolina and Kentucky.

Georgia Public Policy Foundation analysis matched population census data with federal outstanding loan balances to create a per capita borrowing picture. In that scenario Georgia ranks 23rd nationally and third lowest among southern states at $60 per resident.

Here is additional data from the U.S. Department of Labor and the GPPF analysis:

Largest Loan Balances & Rank
California                   $9.91 Billion          1
Michigan                   $3.73 Billion          2
Pennsylvania             $3.29 Billion          3
New York                  $3.24 Billion          4
Illinois                       $2.62 Billion          5
North Carolina           $2.56 Billion          6
Ohio                         $2.36 Billion          7
Florida                      $2.07 Billion          8
Indiana                      $2.03 Billion         9
New Jersey               $1.58 Billion        10
Wisconsin                 $1.45 Billion       11
Source: U.S. Department of Labor

Southern State Loan Balances:
North Carolina            $2.56 Billion          6
Florida                       $2.07 Billion          8
South Carolina            $933 Million        12
Kentucky                    $858 Million        13
Georgia                      $634 Million        16
Virginia                       $398 Million        19
Arkansas                    $330 Million        20
Alabama                     $230 Million        22
Tennesee                    $0
Texas                         $0
Source: U.S. Department of Labor

Largest per Capita Borrowing & Rank
Michigan                 $378        1
Indiana                    $310        2
North Carolina          $269        3
California                 $264        4
Wisconsin               $258        5
Pennsylvania           $251        6
Nevada                   $243         7
Rhode Island           $214         8
Ohio                       $201         9
New Jersey             $199        10
Source: Georgia Public Policy Foundation

Southern States per Capita Borrowing & Rank
North Carolina         $269         3
South Carolina        $197         12
Kentucky                $192         13
Arkansas                $119         19
Florida                    $109         20
Georgia                  $60           23
Virginia                   $48           24
Alabama                 $47           25
Tennessee              $0
Texas                     $0
Source: Georgia Public Policy Foundation

Mike Klein is Editor at the Georgia Public Policy Foundation.

February 9, 2011 - Posted by mikekleinonline | Uncategorized | Federal Unemployment Account, Georgia Public Policy Foundation, Mike Klein, National Conference of State Legislatures, President Barack Obama, Unemployment, Wall Street Journal, White House