Obama to Seek Interest-Rate Relief for State Unemployment Plans, Lew Says

President Barack Obama will seek aid for state unemployment-insurance programs burdened by debt because of high jobless rates, White House Budget Director Jack Lew said.

As part of the 2012 fiscal budget, Obama will seek a delay of state tax increases and a suspension of interest payments owed to the federal government, along with a future increase to the minimum income level subject to unemployment insurance taxes, Lew said.

“It’s a very important policy,” Lew said in an interview at Bloomberg News’s Washington bureau. “It reduces the exposure of the federal budget in the future.”

States, led by California, Michigan and Pennsylvania, have borrowed $42 billion from the federal government as of Feb. 4 because their unemployment trust funds have run out of money, according to the Labor Department. From 2009 until this year, the loans had been interest-free under a provision of the economic-stimulus program.

Under existing law, some states would be required to raise taxes next year because of federal rules covering shortfalls in unemployment-insurance funds. Obama is proposing a moratorium on those tax increases and interest payments in 2011 and 2012.

Tax Relief

Obama will also propose raising the federal minimum level at which income is taxed for unemployment insurance to $15,000 in 2014, the official said. The current level is $7,000, although most states exceed the required amount.

Lew said the interest moratorium and the future tax increase would help get the unemployment insurance program “back into solid shape after the recession.”

The nation’s unemployment rate was 9 percent last month, down from a high of 10.1 percent in October 2009. The rate has been at 9 percent or higher since May 2009. State and local governments cut 12,000 workers from payrolls last month, according to the Labor Department’s Feb. 4 jobs report.

Obama will send his multitrillion-dollar budget for fiscal 2012 to Congress on Feb. 14. The document will put into precise language the administration’s priorities for increasing economic growth and creating jobs.

U.S. states face budget deficits of at least $125 billion next fiscal year and have responded with proposals to cut education, health care and other programs, according to the Center on Budget and Policy Priorities. Every state except Vermont is constitutionally required to balance its budget.

Helping Ohio

Ohio Governor John Kasich welcomed Obama’s proposal, saying, “obviously, that helps us.”

“I’d rather have a lot more flexibility on Medicaid, but I’ll take what I can get,” Kasich, a Republican elected last fall, said in a telephone interview.

Kasich was one of 33 governors and governors-elect who sent a letter to the Obama administration last month seeking the ability to cut enrollment in the Medicaid health-insurance program for the poor without losing federal funding.

Ohio’s unemployment compensation fund started borrowing money in January 2009 and borrowed $2.36 billion as of Feb. 4, according to the state Department of Job and Family Services.

The department estimates that interest payments will be $77.1 million in the 2011 federal fiscal year and $138 million in fiscal 2012. Ohio, which has a current biennial budget of $50.5 billion, faces a projected shortfall of $8 billion in the next two-year budget that Kasich must introduce by March 15.

Andrew Doehrel, co-chairman of the Ohio Unemployment Compensation Advisory Council and president of the Ohio Chamber of Commerce, expressed concern that the federal assistance was linked to a possible unemployment insurance tax increase.

Brian Hughes, a spokesman for Republican Governor Rick Scott of Florida, which has borrowed $2 billion from the federal government, and Kevin Roberts, a spokesman for Republican Governor Chris Christie of New Jersey, which has borrowed $1.2 billion, declined to comment on the proposal because it hasn’t yet been released.

To contact the reporter on this story: Nicholas Johnston in Washington at njohnston3@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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