The Golden State has borrowed $8.8 billion so far to cover jobless benefits during a recession where the national unemployment rate crested above 10 percent. It is not alone. More than 30 states have had to take out similar, albeit smaller, federal loans to keep their unemployment benefit systems afloat.
Their combined debt tops $40 billion and the U.S. Labor Department expects 40 states to be in debt to the federal government by year’s end, underscoring the labor market’s problems in the deepest recession since World War Two.
To give cash-strapped states a break, the federal economic stimulus program enacted last year suspended interest on the loans to states for two years. Without an extension, interest payments resume next year and Washington could raise payroll taxes on employers in delinquent states if loan balances remain outstanding.
State leaders fear that would derail a jobs recovery which they need so employers replenish bare state coffers and enable states to repay the unemployment loans.
As Connecticut Gov. Jodi Rell in a recent letter told her state’s Congressional delegation, “It would inevitably have the effect of stifling growth, halting reemployment and dragging out the employment crisis even further.”