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Obama backs Welch plan to grant states unemployment reprieve

February 11, 2011

NEAL P. GOSWAMI
Staff Writer
BENNINGTON — A plan by Vermont Rep. Peter Welch to allow states to delay repayment of unemployment insurance money borrowed from the federal government received a boost Friday now that the Obama administration is including it in its proposed federal budget.

Vt. Rep. Peter Welch

Welch, a third-term Democrat, first proposed in January 2010 that a provision included in the American Recovery and Reinvestment Act, or stimulus bill, which allowed states to delay repayment of interest on federal loans helping them to cover shortfalls in their unemployment insurance trust funds, be extended for two years.

The delay would save Vermont $8.4 million over the next two years, Welch said.

“It’s extremely important to Vermont and, frankly, to all the states. We’re at the beginning, we hope, of a fragile recovery, and we don’t want to derail it,” Welch said in a telephone interview Friday.

States’ unemployment trust funds have been decimated by the recession, causing them to turn to the federal government for loans to continue providing out-of-work residents with benefits. Thirty states across the country have borrowed a total of $42 billion, and interest payments of $1.3 billion are due on Sept. 30.

As of Feb. 2, Vermont has so far borrowed about $50.2 million from the federal government, according to Vermont Department of Labor Commissioner Annie Noonan. She said the state has recently been borrowing money at a rate of about $10 million per month.

The state’s first interest payment in September totals about $3.6 million, Noonan said. The state will owe an additional $4.8 million in 2012 if no reprieve is offered by the federal government.

The stimulus bill delayed interest accrual of unemployment insurance loans through 2010. Welch said his plan extends that provision through 2012.

Interest payments from states must come from their general funds, which are already facing painful cuts in most states.

“This legislation would give the state breathing room,” he said. “Down the road, the state will repay, but we hope it will be when times are better and revenues are stronger and doing so won’t add to the pain.”

Vermont Secretary of Administration Jeb Spaulding said allowing states to delay interest payments will take some pressure off of Vermont’s large budget deficit.

“Given the pressing need to close a $176 million shortfall in the state’s budget next year, this temporary federal assistance would provide much-needed support when Vermont needs it most,” he said.

Welch said he learned on Friday that President Barack Obama’s proposed budget includes a similar plan to spare state’s from the September deadline. “That’s an enormous boost to our efforts,” he said.

Delaying the interest payments adds nothing to the nation’s soaring deficit, Welch said, because the money borrowed by states came from a “segregated” unemployment insurance fund. As a result, both Democratic and Republican governors should support the measure, he said.

“I think that the governors, Republican and Democratic, live in the real world and all of those states are getting hammered because of the recession,” he said. “My hope is that those governors would speak to their representatives and say, ‘Hey, this makes sense.’”

The Obama administration’s budget is also expected to postpone for two years a tax increase on employers laid out in current law aimed at helping to replenish unemployment funds.

Vermont’s fund is expected to be back on track by 2015, regardless of the president’s proposal, Noonan said.

“The information that we have and we believe is that the (unemployment insurance) trust fund will be solvent in 2015,” she said. “We don’t believe that even the change that the president has proposed will change that.”

Contact Neal P. Goswami at ngoswami@benningtonbanner.com

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