Democratic-Led States Let Their Federal Unemployment Debts Linger

Despite sitting on surpluses, California, New York, Illinois and Connecticut allow fees to rise for businesses as they spend money on other programs

By Jimmy Vielkind of The WSJ. Excerpts:

"At least four Democratic-led states with budget surpluses this year have chosen not to fully repay the federal government for money borrowed to fund unemployment benefits, a move that will impose increased charges on businesses to help make up the difference.

California, Connecticut, Illinois and New York have directed surplus funds to social programs and taxpayer rebates, among other causes, leaving unpaid debts to the federal government ranging from tens of millions of dollars to more than $15 billion.

If the debts aren’t fully repaid by Nov. 10, as officials in the four states envision, the federal government will start charging $21 per employee annually on all businesses in the states next year. In addition, state taxes on businesses to fund their unemployment programs will go up by varying amounts.

Business groups say the increased charges are unfair, particularly for companies that haven’t laid off employees recently, and unwise as the economy is potentially headed toward a recession. Liberal advocacy groups and Democratic legislators say the public benefits more from money spent on programs like housing and infrastructure, as well as tax rebates, rather than preventing small fee increases on businesses.

Each state administers its own unemployment system. Officials set benefit levels and payroll taxes to fund claims, determining rates based on the system’s needs and how frequently a given employer produces claims. The federal Labor Department oversees systems and gives loans to states when their fund balances run low."

"Twenty-two states received loans to cover claims brought on by pandemic-related shutdowns, according to the Labor Department. The amount and duration of the borrowing varied, but the Labor Department reported a peak of $54.7 billion outstanding in April 2021."

"The loans accumulate interest, though it was waived for the first months of the pandemic. If a state has an outstanding debt on Jan. 1 for two consecutive years, the federal government withholds an additional $21 per employee annually to pay down the balance, a levy that escalates by the same amount each year."