Federal aid eyed by legislators for Indiana jobless fund

INDIANAPOLIS — Indiana is unable to foot the bill for benefit payments itself, and now, Statehouse Democrats and Republicans alike are banking on a federal bailout as the unpaid tab runs higher by the day.

Even though Indiana has now borrowed $1.7 billion from the federal government to cover the weekly unemployment payments, state lawmakers appear ready to change their minds about new business tax rates passed they approved last year in an attempt to remedy that shortfall.

The reason: Since 27 more states are in the same boat, having borrowed a total of $32.5 billion, they figure the federal government has to step in.

Right?

“It’s never happened before, and the likelihood of it happening in this environment is relatively low,” said Rich Hobbie, executive director of the National Association of State Workforce Agencies.

Nonetheless, on an 82-17 vote, the Democratic-led Indiana House on Wednesday voted to cancel last year’s business tax increase before it cost employers $360 million this year.

They did so after adding a host of the party’s initiatives, such as accepting a long-term increase in jobless benefits in exchange for an immediate infusion of $148 million in federal stimulus dollars to pay those benefits.

But they advanced an objective that began in the Republican-controlled Senate, where rather than repealing the new tax rates outright, the chamber passed legislation to delay them by one year.

Still, by expressly opposing one tax hike, state lawmakers are tacitly consenting to another.

Starting next year, the federal government will force Indiana to slowly begin paying down its debt.

Currently, businesses pay 0.8 percent of the first $7,000 each of their employees earn – or $56 per year. That amount will increase by 0.3 percent each year.

Therefore, next year, businesses will pay $77 for each employee. The following year, they’ll pay $98. The increases continue until the debt is erased, up to a total of 6.2 percent, or $434 per worker – a cap no state has ever reached.

One way Indiana can stop the escalating payments is by making business tax rate alterations such as the change lawmakers made last year but are nixing now, before it takes effect at the end of March.

The other way is if the federal government steps in, as it did in the 1980s, and agrees to put off the $21 per employee, per year business tax hikes as long as states are making progress toward paying down their loans.

Hobbie said beginning in the late 1970s and continuing through 1983, states borrowed federal funds to pay jobless benefits. By the end of the decade, those borrowed dollars were all returned, sometimes thanks to changes states made themselves and other times because of the escalating federal business taxes.

“Inflation was coming down, and the economy was growing again. That’s really the key,” he said.

Rep. Randy Borror, R-Fort Wayne, said the Democratic changes are akin to “dumping gasoline on a fire.”

Others, though, were willing to accept those alterations in order to erase the rate increases.

“A spoonful of sugar helps the medicine go down,” said House Minority Leader Brian Bosma, R-Indianapolis.

For Democrats, though, the medicine was repealing the rate hikes. Sugar or not, some weren’t willing to take it.

“Is that the way Hoosiers take care of the state’s business? I don’t believe so,” said Rep. Vern Tincher, D-Riley.

Rep. Dennis Avery, D-Evansville, said lawmakers were “repealing the fees necessary to pay the bills. That’s disappointing.”

He pointed out that it is unusual for both parties to hope for a federal bailout.

“We are differing our responsibilities as a state, and we’re saying, ‘Please, federal government, pay our bills for us, and everything will be OK,’” he said.

The bill now heads to joint House-Senate conference committee negotiations, where Senate Republicans say they’ll try to strip away some House additions.

“We're willing to compromise, we're willing to deal with the tough issues and exhibit leadership, but we have to be aware of the economic conditions we face and respond with appropriate legislation. And I'm concerned that what the House has passed, however well-intentioned, is not ultimately good for Indiana businesses,” said Sen. Brandt Hershman, the Lafayette Republican who shepherded last year’s legislation through the Senate.

Republicans particularly object to provisions that penalize employers for failing to properly classify their workers.

Sen. Dennis Kruse, R-Auburn, said Democratic changes “are unacceptable as amendments, but there are a couple of points we could probably work on in a conference committee.”

He said the bill is “becoming a bargaining chip and it'll be one of the bigger conference committees that will be meeting next week.”