INDIANAPOLIS | Indiana businesses and state government will soon begin paying millions of dollars in penalties and interest to the federal government due to the state's severely overdrawn unemployment insurance fund.
The Indiana Department of Workforce Development projects the state will have borrowed $2 billion from the federal government by the end of the year to keep its unemployment fund solvent. Federal provisions forgiving penalties and interest on the borrowing expire in December.
Starting in January, Hoosier businesses will have to pay a penalty of $21 per worker per year and the state will have to fork over up to $80 million in general fund revenue to pay interest on the unemployment loan. The business penalty increases by $21 per worker per year until the loan is nearly paid off.
Indiana's unemployment benefits have exceeded premiums since 2001. State legislators approved an increase in employer-paid premiums in 2009 but voted to delay implementation due to the recession. The state's unemployment trust fund, which stood at $1.6 billion in 2000, was depleted in 2008 and Indiana has been borrowing ever since.
Indiana is not alone, according to Douglas Holmes, president of the National Foundation for Unemployment Compensation and Workers' Compensation. Thirty-one states have borrowed more than $40 billion from the federal government to pay unemployment benefits. Illinois owes $2.2 billion.
However, Indiana has been borrowing longer than most and is one of three states where government and businesses will be forced to pay penalties and interest in 2011, Holmes said.
State Sen. Brandt Hershman, R-Wheatfield, chairman of the Legislature's unemployment insurance study committee, said he was "deeply frustrated" Wednesday after learning that the federal government can use the interest and penalties paid by Indiana taxpayers and businesses for any purpose.
"The federal government is in essence finding a backdoor way to spend more money by forcing the states to pay more money," Hershman said. "I think it's outrageous behavior."
Hershman said he hopes Congress will pass a law delaying the penalties and interest payments when it returns to Washington, D.C., after the Nov. 2 elections. Until Congress acts, he said, state legislators are forced to just wait and see what will happen.