This post was originally published on this site
Eight states wrote to the federal government Tuesday asking for more time to pay back the interest on loans they took out to pay jobless benefits during the pandemic.
States had until Sep. 6 to repay the Treasury Department for money they borrowed to supplement their own unemployment insurance funds. Once that deadline passed, 10 states still had outstanding balances and began to accrue interest.
Earlier coverage: These 10 states owe late interest on their federal jobless-benefit loans
“We believe the waiver deadline was originally determined under the assumption that the pandemic would likely be over and that the economy and state governments would be in recovery mode,” wrote the financial officers of the eight states in a statement issued by Illinois Comptroller Susana Mendoza.
“However, it is quite plain to see that this public health crisis is not over, and the benefit provided by this interest waiver is still necessary.”
The statement had New York, Colorado, Pennsylvania, Connecticut, New Jersey, Massachusetts and Minnesota as co-signatories.
“These are states that bore the brunt of the pandemic and did the best they could to protect their population by putting restrictions in place, and ended up with a pretty large deficit,” said Andrew Stettner, a senior fellow at the Century Foundation. “There is some policy justification for saying, we want to give you a little more time to get your economy on its feet and get the loan balance lower.”
Conversely, Stettner told MarketWatch, “These were states that did not save sufficiently for a recession of any size.”
It isn’t uncommon for states to borrow from the federal government during a bad downturn, or for them to receive a grace period before needing to start paying it back. What’s concerning is the significant overlap between the states that were in a similar position coming out of the Great Recession and in 2021.
If anything, the problem is more “concentrated” now among states that have failed to make any headway in reforming their unemployment insurance systems or setting aside money for the next downturn. In 2009, 36 states owed roughly the same amount as the 10 holdouts as of September, approximately $45 billion.
That makes it hard to see the federal government taking any steps to grant the request, Stettner said — even if there were a mechanism for it to happen, which there is not.
“What I’d like to see is if the federal government were to give some money for this, it should come with strings,” he said. “Some states will be insolvent over and over again because their system is broken. You have to have a federal hook to make them do it.”
Illinois owes the federal government $4.5 billion, Mendoza’s statement said. With an interest rate of 2.27%, the state has accrued $19.6 million in interest since the waiver expired and after paying $6.3 million in September.
Colorado Controller Robert Jaros said his state owed $1 billion, with accrued interest of almost $4 million that he expects to grow to over $20 million if not paid within a year.
As large as those balances sound, payroll taxes to pay down the accrued interest generally work out to be less than $100 per worker a year, Stettner said. Still, some states, including Texas, Louisiana, Kentucky, and Iowa, have chosen to use their American Rescue Plan funds to pay down the federal loans they took out, rather than raise taxes.
