Monday, June 27, 2011

Alabama businesses likely won't face a $36.8 million federal unemployment tax increase, state official says

Tom Surtees is the director of Alabama's Department of Industrial Relations, which runs the state's unemployment compensation program.

MONTGOMERY -- Alabama businesses won't face a federal tax increase that could have totaled $36.8 million for this year because the state will meet a deadline to repay federal money it borrowed for its unemployment compensation trust fund, a top official predicted.
"I don't think they'll have to pay it at all," said Tom Surtees, director of the state Department of Industrial Relations, which runs Alabama's unemployment compensation program.
Rosemary Elebash, state director of the National Federation of Independent Business, said that prediction was good to hear. "I'm very pleased, extremely pleased," she said.
Elebash said employers "don't need any more payments that they have to make, either on taxes or penalties or interest or anything" in what she said remains a very tough economy.
State employers pay taxes into Alabama's unemployment compensation trust fund, but a huge jump in jobless benefits paid to workers laid off in the Great Recession exceeded tax collections in 2008 through 2010, and the state borrowed federal money to keep its trust fund solvent.
The trust fund had a balance of $405.5 million in December 2007 and $309.7 million in December 2008, state records show, but would have had deficits of $142.5 million in December 2009 and $200.7 million in December 2010 without federal loans.
The state at one point owed the U.S. Treasury $288 million, Surtees said. But taxes collected by the trust fund have exceeded payouts in recent months, and the state as of Tuesday had whittled its debt down to $44.4 million, according to the U.S. Department of Labor.
Surtees said the state would pay off all of its debt by a Nov. 10 deadline.
If the state doesn't repay all the federal money it has borrowed by then, he said, the U.S. government will reduce a tax credit it gives employers for paying federal unemployment taxes. That would cost employers an extra $21 per covered employee, or a statewide total of about $36.8 million for this year, payable next year.

'Cover it somehow'

Surtees said the state unemployment tax that employers pay for covered employees is paid quarterly, next due in July and October. He said tax collections should exceed payouts of jobless benefits by enough to repay all the debt by Nov. 10.
But if net tax collections fall short, Surtees said, the department would borrow money, perhaps getting a bridge loan from the state finance department, to pay off any remaining debt owed the U.S. Treasury by the deadline.
"We're going to cover it somehow," Surtees said. "The ideal way is with our normal revenue stream."
"We're looking at all the options available to us, because our goal is for no employer in this state to have to have a reduction in their (federal unemployment) tax credit," Surtees said.
He predicted net unemployment tax collections could repay any bridge loan by May. But he added that employers would be on the hook for repaying the interest.
Elebash said that likely would be a small price to pay to avoid the reduced tax credit. "You could spread it out among all employers," she said.
Surtees said 83,900 people received unemployment benefits through his department in the week that ended June 17, and that the average weekly benefit was about $208.
He noted that most states, not just Alabama, have had to borrow money from the U.S. Treasury for their unemployment compensation trust funds.
As of Tuesday, 29 states and one territory, the Virgin Islands, had outstanding federal unemployment loans totaling $41.2 billion, including $11 billion owed by California, $3.8 billion owed by Pennsylvania and $3.2 billion owed by Michigan, according to the U.S. Department of Labor.

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