How Paying Off Indiana's Federal Unemployment Insurance Loan Early Would Help Hoosier Small Business Owners

Date: September 01, 2015

How Paying Off Indiana’s Federal Unemployment Insurance Loan Early Would Help Hoosier Small Business Owners

The state began borrowing money from the federal government in 2008, when unemployment demands exceeded the reserves of the Indiana unemployment insurance trust fund. At its highest point during the recession, in 2011, the loan ballooned to about $2.2 billion.

Employers are now shouldering the burden of paying back this debt with per-employee penalty rates assessed on a graduated scale: $21 per employee in 2011, $42 in 2012, $63 in 2013, $84 in 2014, $105 in 2015 and $126 in 2016. Although the unemployment trust fund is on track to pay off the loan by May 2016, using the surplus to pay it off early—by Nov. 9, 2015—would save businesses about $327 million in penalties, reports the Indy Star.

The payback terms were dictated by the federal government without consideration given for the previous unemployment rate paid by employers, and they are in addition to unemployment benefit costs that businesses already pay for every employee with each paycheck, explains Mark Hagar, president of Specialized Printed Products in Fort Wayne and chairman of the Indiana Leadership Council.

“The assessments represent an opportunity cost to employers,” he says. “It leaves the employer with less money to buy equipment or give raises or participate in other activities that might grow their business. It almost certainly represents money that is not spent in the local economy. The cumulative effect of every business making these contributions is hundreds of millions of dollars.”

If the federal loan were paid off early, the surplus money would be used as a loan to the state unemployment insurance trust fund, and repayment terms could be determined by Indiana leaders rather than the federal government, Hagar says.

“The repayment schedule could be extended to reduce the annual amount employers have to pay, or the burden could be spread to all Indiana taxpayers, the true beneficiaries of the money borrowed,” Hagar explains. “Merely having the flexibility to make decisions regarding the most efficient method of dealing with the debt would be a victory for businesses and legislators.”


Related Content: Small Business News | Economy | Indiana

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