Categorized | Budget, Featured Stories

Employers Could Pay Price For Borrowing As Debt Mounts

By Todd Shepherd, COLORADO NEWS AGENCY

As economic activity has failed to significantly pick up during 2010, Colorado is among numerous states borrowing from the federal government to cover deficits in its unemployment insurance fund.

Original reports in the late spring of this year indicated that the state had borrowed roughly a quarter of a billion dollars to shore up the fund. That figure now stands at $368 million, according to a U.S. Treasury website.

When measured on a per-capita basis, Colorado is not as deeply in hock as several other states. However, the prospect of continued borrowing still has some legislators concerned. The loans will begin to accrue interest beginning in January.

A June evaluation of the fund by the state auditor noted that the Colorado Department of Labor and Employment had not fully investigated options for deferring interest, and that by not doing so, Colorado businesses were at risk for making up the difference through higher premiums:

Statute requires interest costs on federal loans to be paid by employers. Because Colorado’s loan will likely be outstanding for more than three years, employers in the State will incur two costs: (1) interest accrued on the loan beginning on January 1, 2011, and (2) a decrease in the federal tax credit (i.e., FUTA tax credit) beginning in late 2012. These additional costs will be levied on employers while recovery from the current recession is still occurring. Federal law and regulations offer states options for deferring interest costs on loans, which could help Colorado employers.

Cher Haavind, spokeswoman for the labor department, said that several months ago, the department convened a stakeholder group comprised of business and labor representatives to address fund-solvency issues.

“A deferred interest proposal, among other remedies, is part of the current discussion,” Haavind said. Additionally, she says the labor department has joined the National Association of State Workforce Agencies in lobbying the U.S. House’s Ways and Means Committee for an extension of interest-free borrowing.

GOP Senate Minority Leader Mike Kopp, of Littleton, says over the fall, Senate Republicans laid out an agenda that included weening the state off of federal “backfills.”

“We want to push back on the reliance on federal funds, so the senate (Republican) caucus is certainly ready to have that fight,” Kopp said.

Sen. Rollie Heath, D-Boulder, said the federal loans are troubling, but he argued that they served their purpose over the last year.

“The level of debt is only representative of the fact that that’s how much the citizens of Colorado got,” Heath said. “To do nothing for those folks, would have been more alarming.”

In recent weeks, businesses all across the state have faced rising unemployment insurance premiums to increase cash flows to the unemployment-insurance fund.

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