The federal budget contains a line item that may allow states to defer interest on loans. Image: Flickr / MoneyBlogNewz / CC-BY
Though it still needs to go several rounds through Congress, the president has submitted his budget. One line-item has many states taking a second look at their budgets. States that took out federal loans to pay for unemployment may be able to defer interest for another few years.
Unemployment insurance loans
In order to pay for rising unemployment, many states took out loans from the federal government. These unemployment loans were initially scheduled to go into repayment in 2010 and 2011, when the federal government expected the economy to have recovered. The interest payments on these loans are equaling several million dollars or more, draining state budgets already stretched thin.
The problem of unemployment loans
These bad credit loans made to states such as Nevada add up to millions of dollars. Federal unemployment taxes are slated to go up in states that are still carrying a balance on their unemployment loans, in order to cover the interest payments. This increase in unemployment taxes would have been automatic, and the money would be directed to the federal budget. In some states, there is already an additional fee being charged to cover unemployment trust funds that would otherwise run dry. Some states have addressed these unemployment loans by selling the debt to the private market, while others have simply paid back their obligations.
Deferring interest on loans
A line item in the new federal budget would help states face their rising debt. The interest on the federal unemployment loans would be deferred until 2014, when the states would (it is hoped) have the money to pay back the loans. Supporters of the plan claim that by deferring interest on the loans, states would have the ability to address budgetary needs within their own states, without worrying about the interest payments to the federal government. Opponents of the plan, however, say that the federal government can ill afford to take another budgetary hit in place of the states. Either way, this line item may or may not survive the federal budgeting process.
