Gov. Peter Shumlin and Labor Commissioner Annie Noonan today announced that the Vermont Department of Labor will pay off a loan owed to the U.S. Department of Labor two years early for money the State borrowed during the great recession to bolster the then-depleted Unemployment Insurance Trust Fund. The loan was paid in its entirely today when the Governor hit the "Send" button on the Vermont Department of Labor computer to transfer the final payment of $54 million from the State's Unemployment Fund to the USDOL Employment and Training Administration.
In making the full loan payment today, the State will avoid the General Fund interest payment in September 2014, and Vermont businesses will see their Federal Employment Tax credit restored this January, reducing their Federal Unemployment Tax payment by $21 per employee, and avoiding an increase that would have occurred again this January if Vermont had not paid off the loan in full.
"I wanted to reduce this expense to the State and to Vermont employers as quickly as possible. In fact, this loan payoff comes a full year ahead of the early projections," the Governor said. "I am extremely pleased to see the State and our employers relieved of these additional costs earlier than anticipated. This is another sign of our emerging recovery."
Twenty states across the nation today still owe balances to the federal government for money they borrowed for their UI funds during the recession.
During the recession years of 2007-10, the Vermont Unemployment Trust Fund experienced high demand for benefit payouts. In 2010, the State was forced to borrow $77.7 million from the federal government for the UI Trust Fund. The Vermont Department of Labor has been making accelerated payments on the loan to reduce the balance and interest payments.
The loan was needed to continue making payments for unemployment to Vermonters who had experienced job loss during the economic downturn, however the loan carried a significant cost to the State, employers and workers. First, the State had to make interest payments from the General Fund, causing an extra $1.5 million to $3 million expenditure each September, based upon the loan balance. Second, under the federal loan provisions, any state with an outstanding UI loan balance for two or more consecutive years lost their federal unemployment tax credit in the January following the second year. In January 2013, Vermont employers felt the impact of this tax-credit loss when their costs increased $21 per employee per year. Vermont workers were also impacted by structural changes to the program that reduced benefits.
Gov. Shumlin thanked legislators, business groups and labor advocates who worked on the 2010 UI reform legislation, were aware of these impacts, and worked to 'share the pain' in order to produce enough savings to pay back the federal loan.
"Moving forward, my Administration is interested in working with involved parties to ensure the Unemployment Trust Fund is not only financially prepared for a future economic downturn, but is also well balanced for both employers and workers," Shumlin explained.
For more information: https://www.treasurydirect.gov/govt/reports/TFMP/TFMP_advactivitiessched.htm.