The state's unemployment compensation fund is now broke – which was predicted even before the COVID-19 pandemic. Now state leaders are struggling with how to pay back the money borrowed from the federal government to keep issuing unemployment insurance benefits. Ohio Public Radio's Karen Kasler reports.
Earlier this year, the unemployment compensation fund had over a billion dollars in it – but that ranked it fifth from the bottom in the list of solvency of all states’ jobless benefits funds.
Then the pandemic hit.
“We are about a billion more than what we have ever paid out in a full year," said Kim Hall, the director of the Ohio Department of Job and Family Services.
Hall said on June 16 that in 90 days, the fund had paid out so much thatit was officially broke. That day Governor Mike DeWine said the state would tap the $3.1 billion it asked to borrow from the U.S. Department of Labor last month.
“That total exceeds what we think we will need to pay out in benefits. It is essentially a line of credit, so we asked for greater authority than we currently think that we will need so that we will have it just in case we do need it," DeWine said.
Ohio isn’t alone – Hall says eight other states have requested borrowing authority.
And this isn’t new. The state borrowed $3.4 billion when the fund went broke in 2008 during the Great Recession. That loan was finally paid back in 2016.
And in that time and since, no fix has been agreed upon for how to shore up the fund either through more money paid in by employers, more paid in by employees, or smaller or shorter payouts to those workers.
It was clear early on that the state was going to borrow from the federal government to cover unemployment checks after the fund ran out of money.
There’s no interest on whatever the state borrows through the end of this year. But a 2.4% interest rate starts on January 1, and will increase by .3% each year it’s unpaid. Last time the state racked up $258 million in interest by the time it paid back its loan in 2016.
And this time, Ohio businesses will pay that interest rate on the federal loan, and the state would front the money.
But the effective interest rate could be lower for businesses if the state issues bonds.
“With interest rates low, it probably does make sense to do this because ultimately that would be less expensive for the businesses who have to pay the cost of the taxes than it is then what it is, just pay the feds back without it," said Greg Lawson with the conservative Buckeye Institute. "So if you do get it, you pay the feds back, you can save some money on what it costs to the businesses.”
Lawson said the state is probably trying to avoid any extra costs to businesses that are already suffering, and that bonding wouldn’t be much of an increased cost to the state.
But Zach Schiller with the progressive think tank Policy Matters Ohio said this doesn’t address the real problem of the insolvency of the system.
“You need more revenue for the system to be able to pay for itself. And bonding simply transfers who you're paying the interest to, or the debt," Schiller said. "It doesn't mean you're doing anything about the debt. It just means you're paying somebody else off instead of paying the federal government. You're paying off private bondholders.”
Schiller said the overall savings from this approach is unclear. And he notes that Michigan and Pennsylvania sold bonds instead of borrowing from the federal government during the Great Recession, and only paid off that debt in the last year.
But both Schiller and Lawson agreed that using the state’s rainy day fundto pay unemployment benefits would not be a good choice, and that a long term solution will likely have to wait till the economy is on firmer footing.
But lawmakers are interested in the bonding option, and looking into whether voters will decide whether to issue bonds, or if lawmakers could do this on their own.
Earlier this month a proposal to put before voters a constitutional amendment passed the Senate. Republican Senate President Larry Obhof said afterward he’d prefer a House bill that wouldn’t require a ballot issue.
“We thought it was important to keep that conversation going and have both options available so that either our chamber or the House could, sometime this fall, or maybe even later this summer, pick the option that we thought was better and get it done," Obhof said.
The House would have to take action on either option, and isn’t scheduled to return to the Statehouse until September.
