Georgia bankrolls half of unemployment benefits with fed loans

By Leon Stafford

The Atlanta Journal-Constitution

Less than a year after taking out its first loan to cover unemployment benefits, a state of Georgia fund already owes the federal government $454.5 million, a debt that continues to grow.

The Georgia Department of Labor said Friday about 50 percent of the money it has collected in 2010 for the state's unemployment insurance trust fund has come from a loan open to states through the Federal Unemployment Account.

Labor Commissioner Michael Thurmond, who will leave office in January, said the borrowing will probably continue next year unless the economy improves and brings significant job growth. He said the alternatives are to raise unemployment insurance taxes on companies, reduce benefits to the unemployed or both.

"People have to get back to work," Thurmond said. "We can mitigate this with employer tax increases and benefit cuts, but you can't tax your way out of this."

The question is: How will the state pay back the loans, which begin accruing interest next year?

Bert Brantley, spokesman for Gov. Sonny Perdue, who also leaves office in January, said it's unlikely that the state labor department would ask for money from the general fund.

"The unemployment fund is treated differently than the general fund and is not mixed," Brantley said. "I think they have done the best they can under very difficult circumstances."

Thurmond said debt payments would come from the unemployment trust fund once Georgians are back at work and less money is spent on benefits. Before the recession, he said, Georgia's unemployment fund held about $1.2 billion.

Last week the department announced that Georgia's unemployment was 9.9 percent in October, the 37th consecutive month the state has exceeded the national unemployment rate, currently 9.6 percent.

Labor Commissioner-elect Mark Butler will have ultimate say on how the department deals with the debt. He could not be reached for comment.

Brian Robinson, a spokesman for Gov.-elect Nathan Deal, said Deal has had several budgetary discussions since winning the office he will assume in January, but Robinson did not know whether he had broached this topic.

"For now on these issues we still have to defer to Gov. Perdue," he said.

Georgia is among 32 states and territories have borrowed from the U.S. government to make up unemployment funding shortfalls. California, the nation's most populous state, owes almost $9 billion. Georgia ranks 18th on that list.

The loan is interest-free for the first year, but states will be charged 3.94 percent interest on the outstanding balance beginning in 2011, according to the U.S. Department of Labor. Thurmond said some congressional leaders have suggested extending the interest-free terms given the longevity of the economic downturn.

However, Rep. Phil Gingrey, R-Marietta, said,  "(If the state owes money) I think the state should pay it in a fiscally responsible way. I mean, it's painful, but we've got to balance our budget and we've got to pay our debts -- whether it's to the federal government or whomever. I think they (state officials) are going to have to deal with that."

Some residents agree repaying the debt is important, but it's also critical that the state help those who are unemployed.

“It’s not a simple question," said Larry Jackson, who recently lost his job as a teacher's assistant in Clayton County. “In the end, the federal government is just printing money and that could eventually hurt my children and grandchildren. I’m concerned for the people who need the jobs. Do what you have to do, but we may have to reduce the number of people we help. A compromise would be the best thing.”

Anthony Goolsby, of Decatur, hasn’t had full-time work since July 2008. He said it takes jobs to repay debts.

"If I’m in debt to a debt collector, I won’t pay them until my wife is eating and my child is eating," he said. "They ask, ‘When do you think you can pay?’ And I say, ‘When I get a job.’ A sustainable job market will then uplift the economy and get it back on track. Until then….”

There is no due date for the balance of the loan, but states are required to pay the accrued interest by Sept. 30 each year that it still owes money, a U.S. labor department spokesman said.

In addition, after the first two years of an outstanding balance, the state will lose three-tenths of a percentage point on its employer tax credit if the money has not be paid by Nov. 10 of the second year, the spokesman said. Every year after that, the state will lose at least another three-tenths of a percentage point in employer tax credits if the balance is unpaid by Nov. 10.

Georgia has borrowed the money despite increasing unemployment taxes for about 15 percent of the state's companies in 2009 and again in 2010. Labor Commissioner Thurmond said companies that have laid off workers and had negative employer unemployment insurance balances paid 15 percent more in 2009 and 30 percent more in 2010.

Tim Mescon, former dean of Kennesaw State University's Coles College of Business, said Georgia may have some wiggle room to increase  employer unemployment insurance rates because they have generally been low. He doesn't believe the alternative -- cutting benefits to the unemployed -- is a viable option because the political backlash would be swift.

Further, with so many other states in the same condition, Mescon doesn't think asking employers to pay more would ruin  Georgia's reputation as a low-tax state or its ability to lure new business.

"The only saving grace is 60 percent of the states are in the same pickle,"  said Mescon, who is now president of Columbus State University. "It's part of the heavy lifting, that everybody is going to have to share the burden until we see daylight."

Staff writers Dan Chapman and Bob Keefe contributed to this article.