If the state’s unemployment fund goes in the red, a top Bredesen administration official suggested Tuesday that borrowing money from the federal government was preferable to a second round of tax hikes on employers.
Department of Labor and Workforce Development Commissioner James Neely told the House Consumer and Employee Affairs Subcommittee Tuesday that the business community may have agreed to a tax hike to help make up for the shortage, but that’s unlikely this year.
The fund’s solvency is now in doubt. Benefit payments to unemployed Tennesseans during the deep and lengthy recession have exceeded the amount of unemployment taxes paid into the unemployment fund.
The state’s unemployment rate in December was 10.7 percent, up from 10.0 percent in November, and up 3.3 percent from December of last year.
The legislature last year changed the amount employers are taxed from the first $7,000 of an employee’s pay to the first $9,000. Lawmakers also raised the tax rate by .6 percent.
“This time when we talked, the economy is in such a state that it’s not prudent to go back to the employer community and say we need to raise taxes,” he said. “I told them it’s our expectation to be able to manage through this short-term.”
Neely said a loan from the federal government would be interest-free if the state chooses to borrow money from the federal government to keep the unemployment fund solvent.
“On this particular draw-down, there are no strings other than to pay it back,” he said.
Some lawmakers weren’t so sure.
“I was under the impression that (the tax hike) was the fix-all and we wouldn’t be back here again,” said Rep. Gary Moore, D-Joelton. “And last year, I recall hearing from you, if we borrowed, we would have to pay excessive interest rates, and now you say the sky’s the limit. What changed between last year and this year?”
Neely said that when about 40 states last year claimed the need to borrow money to make their budgets, the federal government “realized they needed to do something to help those states,” and began to offer interest-free loans through 2010.
“All of the states around us except Mississippi have drawn down money,” Neely said.
In fact, the Bredesen administration is counting on projections that suggest the “blips” of unemployment fund shortfall are short-term. The unemployment fund might become overdrawn for a couple months in the coming year, he said.
Private-sector business executives and administrators are predicting a third quarter turnaround and fourth quarter gains, Neely added. He cited Ford Motors’ announced plans to call back 150,000 workers to handle construction of a redesigned vehicle.
“That’s what all major corporations are saying, so I do see some light at the end of the tunnel,” he said.
While unemployment rose in December, Neely also said there are some encouraging signs in looking at the unemployment statistics. The numbers for those unemployed for the first time is down about 15 percent from this time last year, he said.
“Some months, it’s as high as 20 percent,” he said. “A number of employers I talk to, they’re calling people back.”
Asked Rep. Jimmy Eldridge, R-Jackson : What if the administration is wrong and unemployment doesn’t turn around?
“We would up the amount we would ask the federal government to loan us,” Neely responded.