States seek waiver for $380 million in unemployment loan interest
With 10 states and the Virgin Islands on the hook for about $380 million in federal government loan interest payments to keep their unemployment systems funded, and the amount growing every week, state officials are trying to rally support for a bill in Congress that would cancel borrowing costs.
But the push comes as Senate Republicans say Democrats went too far in passing the $1.9 trillion US bailout bill and want to claw back money from states instead of giving them more. . And states with so-called “Title XII upfront” loan balances are largely Democratic-leaning, further calling into question whether a proposal to waive interest could ever gain traction in the Closely divided Senate.
A Biden administration’s emergency request for more pandemic funding is stalled after Senate Republicans wanted about half of the $15 billion requested to come from the $7 billion recovery States ARPA.
Still, Illinois Comptroller Susana Mendoza, a Democrat who met with the state’s congressional delegation in Washington this week, said Road Fifty Thursday that despite a $1.7 billion surplus, the state could use the money for more than paying tens of millions in interest.
“I have to take general revenue funds, which are precious right now, and spend them on interest payments, which I would hate to do,” Mendoza said. “But in the meantime, while we think about this, can’t you charge us millions of dollars in interest?”
States, struggling to pay an increase in unemployment claims, especially at the start of the pandemic, withdrew Title XII advances to the federal government. While some states have repaid the money, 10 others and the Virgin Islands still owe around $40 billion. Illinois is on the hook for $4.5 billion.
During this time, the 1.6% interest on the advances accrues. As of March 15, according to Treasury Department figures, the amount of interest owed by Illinois had risen to $40 million. And that’s growing by about $2 million a week, Mendoza said.
According to Treasury figures, New York, Colorado, Pennsylvania, Connecticut, New Jersey, Massachusetts, Minnesota, California and Texas owe between $4.6 million and $177 million in interest. The Virgin Islands owe $871,000.
Coronavirus relief laws approved by Congress over the past two years have temporarily waived interest payments and accruals on advances. But the suspension of interest expired on September 6, leading to an accumulation of charges.
“The September 6 date was really like an arbitrary date,” Mendoza said. “When they passed this, they probably assumed and hoped that the pandemic would be over and the states might be full of money and be able to pay that back. But we were still in a huge omicron peak.
Hopes riding on the new bill
Mendoza and others pin their hopes on a bill introduced two weeks ago by the two Democratic senators from Illinois, Majority Whip Dick Durbin and Tammy Duckworth. The proposal would retroactively eliminate interest that states owe and forgo accruing until September 30.
“Balancing the state’s checkbook is no easy task, especially during a pandemic that has deeply affected our health care systems and our economy,” Durbin said in a press release after meeting with Mendoza on Thursday.
Democratic Senators Michael Bennet of Colorado, Richard Blumenthal of Connecticut, Kirsten Gillibrand of New York and Tina Smith of Minnesota signed the bill as co-sponsors. Illinois Representatives Danny Davis and Brad Schneider introduced the bill to the House.
However, Illinois, along with other states seeking a break, posted budget surpluses of billions of dollars.
For Illinois, however, the extra money could be used to meet the state’s $1.8 billion pension liability and to cover medical care for state employees. “So there are very legitimate uses for that surplus,” Mendoza said.
As for Republican attempts to claw back federal funds, Mendoza said it would be fair for Republicans in Congress to help states like Illinois that she says pay more into federal coffers than they take in.
“Here’s why I don’t feel guilty,” she said of the interest waiver. “In the last five years before the pandemic, Illinois sent $21 billion more to the federal government than we were able to keep. And that money was sent back to Arkansas, Alabama, all the red states.
The seven states that joined Illinois in asking Treasury Secretary Janet Yellen to suspend accrued interest “are sending billions to help these red states essentially pretend they are financially solvent, when in fact they would be bankrupt if it weren’t for us, the donor states,” she said.
“I would love to get back the billions of dollars that Illinois sends year after year to states like its own,” Mendoza said, referring to Kentucky, which is represented by Republican Senate Minority Leader Mitch McConnell.
McConnell’s office did not respond to a request for comment.