States Will Soon Have To Start Paying Interest on Their Massive Unemployment Borrowing

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Sometimes its time to pay the piper. And sometimes that piper is the federal government. And sometimes the piper wants more than $1 billion. Soon. Because of the high jobless rate and past fiscal irresponsibility, 30 states have collectively had to borrow more than $40 billion from the federal government just to keep unemployment insurance checks in the mail. A provision in the stimulus bill made those loans interest-free for an extended grace period.

But no more. Efforts to include an extension of the grace period in Obama’s tax cut extension enacted at the end of last year failed, and the first batch of 14 states will have to start paying interest before the end of this year. Given that state budgets need to be hammered out in advance, that means state legislatures will soon face tough choices as they come back in session.

The amounts due range from California and Michigan, which each face payments of more than $300 million dollars, to Kansas, which will owe about $6 million. (Fun fact: Thats $2 for every Kansan.) And because of federal rules, states cant use unemployment insurance taxes to make interest payments, which means cash-strapped states will have to take that money from their general budgets, so there will be less money for roads, schools and other priorities.

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