Missouri pays off debt to federal government for jobless benefits fund

JEFFERSON CITY, Mo. -- Four years and $444 million later, the state has finally paid the federal government back for bailing out its insolvent unemployment insurance fund.

The fund that finances weekly benefits for unemployed Missourians went belly up in March 2003, after a surge in unemployment claims drained its cash. To continue providing jobless benefits, the state had to borrow money from the federal government.

All told, the state borrowed nearly $444 million from March 2003 through April 2006, said Tammy Cavender, a spokeswoman for the Department of Labor and Industrial Relations, which oversees the fund.

Gov. Matt Blunt's administration said Wednesday that the state paid back its final $135 million in debt to the U.S. Department of Labor within the past week, saving more than $2 million in interest by doing so four months before the end of the federal fiscal year.

Unemployment benefits are financed through special state and federal assessments on businesses that essentially amount to taxes.

Traditionally, Missouri's unemployment tax has risen in response to declining balances in its unemployment insurance fund. That creates a natural lag time before the fund can be replenished. The economic downturn of the early 2000s proved too much for the fund to handle.

The legislature sought to address the problem in 2004 by raising unemployment taxes and changing some of the eligibility criteria. The bill also gradually increased the amount of money paid to unemployed people.

"Overall, particularly considering the crisis we were in at the time, I think it's worked exactly as planned," said Gary Marble, president of Associated Industries of Missouri, whose group was among those lobbying for the 2004 legislation.

The state unemployment insurance fund now has a positive balance of about $123 million, Cavender said.

"Unless something changes in the economy, massive layoffs or a catastrophic event, the projections show that we shouldn't have to borrow," she said.

But the fund balance still falls short of what some consider ideal.

The federal government recommends states have enough money built up to pay jobless benefits for one year without collecting taxes, which for Missouri would amount to about $1 billion, Cavender said.

A state unemployment council created by the 2004 law recommended earlier this year that the fund balance should equal 1 percent of the total annual payroll in Missouri, which would be about $776 million, Cavender said.

State law makes either of those thresholds difficult to achieve, because it triggers an employer tax cut whenever the fund balances exceeds $600 million and another tax reduction when the balance surpasses $750 million.

About 40,000 Missourians currently receive weekly unemployment checks, down from about 70,000 people in June 2003.