By Chris Christoff
Courtesy MCT Campus
As Gov. Rick Snyder and lawmakers struggle to erase a looming $1.4-billion state deficit, another deficit nearly three times as large hangs over the head of Michigan employers.
They owe the federal government about $3.96 billion that the state borrowed to pay unemployment benefits during the worst economy since the Great Depression.
That’s on top of the regular unemployment tax businesses and other employers must pay.
The growing cost is a reason the Republican-led Legislature approved a new law that extends unemployment benefits this year, but next year will reduce to 20 weeks the maximum the state will pay unemployment benefits — down from 26. That means lower unemployment taxes for Michigan employers in the future.
Snyder signed the law Monday, saying it is needed to guarantee 20 extra weeks of federal unemployment benefits this year that were about to be cut off. He said nothing of the shortened benefits next year.
Democratic critics said the change will mean hardship for workers laid off next year and thereafter, and that it won’t speed up the payback of the state’s $3.96-billion IOU to the federal government.
By Sept. 30, Michigan must pay $117 million to the federal government it borrowed for unemployment benefits.
That is just one payment on the interest alone for $3.9 billion in loans.
And, based on current projections, the state is $52 million short for that first payment.
That means taxes are going up for roughly one-quarter of Michigan employers — those whose layoffs cost the unemployment fund more than they have paid into it.
Michigan is not alone in running up a large federal debt for unemployment benefits, but its debt is the second largest among states behind only the $10.5 billion California owes Uncle Sam.
Employers who pay unemployment insurance are responsible for paying back the loans.
The looming cost prompted the Legislature last week to approve a law that does two things.
First, it extends unemployment benefits by 20 weeks through this year, rather than allow the federal government to cut off money. That is all federal money, and it will help 35,000 unemployment recipients immediately, and could help up to 150,000 through 2011.
Second, Republicans added a measure to reduce state-paid unemployment benefits from 26 weeks to 20 weeks starting in January 2012.
None of the changes affect the $3.9-billion loan repayment. But supporters of the bill called it a respite for employers, who will pay somewhat less unemployment insurance starting next year.
U.S. Rep. Sander Levin, D-Royal Oak, railed against the bill as a reckless benefit cut that could affect hundreds of thousands and make Michigan the only state paying for fewer than 26 weeks of benefits.
State Treasurer Andy Dillon has talked about issuing state bonds to pay back Michigan’s federal loan — something Texas did to deal with its obligation. No action has been taken.
Wendy Block, spokeswoman for the Michigan Chamber of Commerce, which backed the bill, said the change only means long-term unemployed workers will qualify more quickly for federal unemployment benefits the state doesn’t have to cover.
Because of the depth of the economic recession, the U.S. has extended jobless benefits to a maximum 99 weeks, including state-paid benefits.
But under federal formulas, federal unemployment aid will be reduced, too, because Michigan’s maximum period is shortened.
That would mean that someone who is laid off after Jan. 1 would be entitled to 16 fewer weeks of extended federal unemployment.
Block said the new law also calls for measures to reduce fraud in the unemployment system that adds up to hundreds of millions of dollars.
An audit recently concluded that the state unemployment agency failed to recover more than $300 million in overpayments and fraudulent claims over a three-year period ending last September.
She noted that the average time for unemployment benefit recipients is 20 weeks — the same as the new state-paid maximum — a fact confirmed by the Unemployment Insurance Agency.
Block said holding down unemployment insurance costs is necessary to keep the cost of doing business competitive with other states.
But Michigan employers had their taxes reduced in 2002, and it’s one reason the state unemployment insurance fund was depleted, said Rick McHugh, an Ann Arbor attorney for the Washington-based National Employment Law Project.
The organization advocates policies to help unemployed people and low-wage workers.
McHugh said Michigan borrowed proportionately more from the federal government for unemployment during the 1980s recession than it has now, and didn’t reduce the maximum period for benefits.
He said the federal loans were paid back through both higher employer taxes and more restricted benefits for jobless workers.