Feds Hit States With Interest on Unemployment Loans

Tax-free provision ended with first stimulus
By Nick McMaster,  Newser Staff
Posted Jan 15, 2011 5:52 AM CST
Feds Hit States With Interest on Unemployment Loans
In this Dec. 17, 2010 photo, Theresa Christenson holds an unemployment check in her home in Burbank, Calif.   (AP Photo/Nick Ut)

(Newser) – With most states already swinging in the recessionary winds, more bad news—many will have to start paying interest on the money they borrow to pay unemployment benefits. When jobless levels hit the unthinkable, with some states seeing 14%-15%, many had to go cap in hand to the feds to cover the gap, ProPublica reports. Those loans, as part of the original stimulus, were interest-free, but that provision has expired and efforts to put a new one in the tax-cut deal failed.

So it's time to pay up, and, because of federal rules, state can't use money from unemployment taxes to pay the interest. That means the money will have to come from somewhere—service cut or tax hike—that will cause pain. California and Michigan have borrowed so much they face yearly payments of $300 million dollars—and with unemployment levels still high, California continues to borrow millions more each day.
(Read more unemployment stories.)

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