Indiana will pay off its federal unemployment loan early leading to significant savings for Hoosier businesses. The State Budget Committee voted to authorize a $250 million repayment of a federal unemployment loan before the Nov. 10 deadline. As a member of the Ways and Means Committee, I remain committed to the financial security of our state, and last session I joined fellow House Republicans in adding the early payoff option of Indiana’s Unemployment Insurance Trust Fund (UI Trust Fund) to the state’s budget.
Unemployment insurance was established to lessen the burden for unemployed workers in the event of an economic downturn. Each quarter, premiums are collected from employers and put into the trust fund, so unemployment benefits may be paid to those eligible. Due to a combination of policy changes and the 2008 recession, the UI Trust Fund went bankrupt in 2008. Indiana joined 34 other states and began borrowing from the federal government to pay unemployment insurance benefits in order to keep the UI Trust Fund afloat.
By 2011, Indiana owed the federal government more than $2 billion. Hoosier businesses were starting to feel the strain of this debt as they saw increases in their Federal Unemployment Insurance Tax (FUTA). During the 2011 legislative session, House Republicans championed legislation that fixed the UI Trust Fund by addressing taxes, benefits and eligibility. This legislation put the UI Trust Fund on a path to solvency while saving employers nearly $1 billion over 10 years. I expect the general fund to be repaid in full by the first half of 2016 via state unemployment insurance tax revenues that are remitted by employers.
Paying off our loan by Nov. 10 was imperative. According to federal law, if the UI Trust Fund loan is not paid off by that date, employers would have to pay $126 per employee, totaling $327 million statewide, in FUTA penalties.
The Federal Department of Labor interprets the statute to allow a state to pay itself back for a UI Trust Fund loan repayment because the money is ultimately being used for benefits.
Indiana is leading the nation in private job growth, and as a fiscal conservative, I remain committed to ensuring that Indiana continues to be financially secure for future generations. By repaying this loan, Hoosier businesses can inject this money back into Indiana’s economy.