14-May-26 State Owes Feds $1.6 Billion for Jobless Benefits
By Catherine CandiskyThe Columbus Dispatch  •  Sunday May 25, 2014 6:39 AM

As lawmakers put the final touches on another $400 million in tax cuts, the state’s failure to pay off a federal loan to keep jobless benefits flowing has cost Ohio employers more than $423 million.

Since 2012, employers have been forced to pay higher federal employment taxes to pay down the state’s debt to the federal government’s trust fund.

After years of chronic borrowing, Ohio owes $1.6 billion, the second highest debt in the nation. And despite a falling jobless rate, the state had to borrow from Washington, D.C., again this year to provide benefits to those out of work.

Ohio now owes more than any state but California, which has to repay $7.5 million. In all, 13 states and the Virgin Islands owe $14.5 billion, according to the U.S. Department of Labor.

The debt is a drag on Ohio businesses that face a bump in the federal tax rate every year until the money is repaid.

“It’s on our radar and it’s a concern,” said Chris Ferruso, legislative director for the Ohio chapter of the National Federation of Independent Business.

“I get calls every October when (the higher rate) kicks in. The longer we owe a balance, as the federal fiscal years roll on, employers will pay a higher tax rate.”

This year, employers are paying an additional $84 per employee. By April 2018, when state officials project the debt will be repaid — even though a repayment plan doesn’t exist — the added tax will climb to more than $200.

State officials say they hope to avoid an additional 1.4 percent hike slated for October when Ohio begins its fourth year of payments, and they will ask federal regulators to waive the balloon-like “benefit cost rate add-on.”

Other states have received such waivers and “we have no reason to believe we will not be eligible,” said Benjamin Johnson, spokesman for the Ohio Department of Job and Family Services.

Sean Chichelli, director of labor and human-resources policy for the Ohio Chamber of Commerce, said it’s hard to say how much of a dent the tax hikes will put into tax cuts being finalized by state lawmakers, most to benefit business.

But it certainly hurts, he said, and needs to be resolved.

Gov. John Kasich’s administration has placed a priority on cutting taxes despite the lingering debt.

“The governor believes taxes are too high and has cut taxes by $3 billion to make Ohio more jobs friendly,” said Kasich spokesman Rob Nichols.

The trust-fund debt “is mess we inherited,” Nichols said. “We paid down a billion of the debt and are borrowing less, but until there is a willingness for (business and labor) to come together and offer a solution, there is no real path forward.”

State unemployment trust funds, financed by state and federal taxes paid by employers, pay jobless benefits for those out of work. If a state’s fund runs dry, as many have during past recessions, states must borrow from the federal trust fund to ensure that unemployment compensation continues to be paid.

In the most recent economic crisis, three dozen states were forced to borrow, with their collective debt reaching more than $47 billion. Most have repaid the money, including Georgia, which made its final payment last week on a nearly $1 billion loan dating to 2009.

Ohio also began borrowing in 2009, when unemployment reached 7.5 percent, and has continued to borrow every year since while also paying down the debt.

Wayne Vroman, a senior fellow at the Urban Institute who has studied Ohio’s trust fund, said lower unemployment will certainly help stabilize the state’s unemployment-compensation fund.

However, to shore up the fund, Ohio will need to permanently raise the unemployment tax and reduce benefits, something state officials for years have refused to do.

Underscoring the stalemate, the Unemployment Compensation Advisory Council, a panel of business, labor and legislative leaders tasked with overseeing Ohio’s fund, hasn’t met for four years. In fact, every seat on the board is vacant because neither the governor nor legislative leaders have made an appointment in years.

Chichelli and AFL-CIO President Tim Burga say a solution will require business and labor coming together to solve the problem and sharing in the pain that will result. Finding that balance will be difficult.

“Workers should not have to be penalized for an economy that is not of their own doing,” said Burga, who called for the council to be reactivated.

Likewise, Chichelli said stabilizing the fund cannot be done solely by raising the unemployment tax. “It will take a tax hike and reduction in benefits,” he said.

Proposals to pay off the debt have come up from time to time, including a plan by state Rep. Dave Hall, R-Millersburg, to use the projected $400 million in savings from Medicaid expansion to pay down the federal debt. Earlier, minority Democrats suggested using the state’s rainy-day fund to pay it down.

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