April 15 (Bloomberg) -- Missouri state Senator Jim Lembke had enough of what he calls Washington’s runaway spending. So he and three fellow Republicans in the state with an unemployment rate of 9.4 percent blocked $105 million in federal aid for those out of work.
“It’s not free money -- it’s borrowed money from China,” he said in interview. “We’ve got to send a message to Washington: Stop the spending, stop the madness.”
In the nation’s capitals, from Trenton, New Jersey, to Phoenix, Arizona, tax-leery businesses and the Republican politics of fiscal restraint are making unemployment benefits the next program to face cuts because of the fiscal turmoil that’s persisted since the recession ended almost two years ago.
States slashed spending and raised taxes during the past three years to eliminate deficits in their general budgets. Now, more than half have run out of cash in their unemployment trust funds after joblessness, now 8.8 percent, peaked at 10.1 percent in October 2009. They have borrowed more than $48 billion from the federal treasury to pay benefits.
Groups as varied as local Chambers of Commerce to the National Employment Law Project, which works on behalf of the poor, have raised concerns about the escalating payroll taxes that will be needed to escape debt and replenish state funds.
Through 2015, employers face as much as $24 billion in automatic tax increases triggered in states indebted to the U.S. government, according to a study by the National Employment Law Project and the Center on Budget and Policy Priorities, two groups who advocate against budget cuts that hurt the poor.
“We’ve got a massive debt that the employers have to pay back, just like many other states out there,” said Daniel Mehan, the chief executive officer of the Missouri Chamber of Commerce and Industry in Jefferson City, the capital. “It’s staring us in the face.”
States have historically paid 26 weeks of unemployment benefits with their own funds, and under temporary measures enacted since 2008, they can receive as much as 73 more weeks of benefits paid by the U.S. government. That eased pressure on the unemployed, with more than 6 million jobless at least 27 weeks in March, according to the U.S. Labor Department.
It’s the state-funded benefits that are drawing scrutiny. In Michigan, where unemployment is 10.4 percent, Republican Governor Rick Snyder last month signed legislation cutting state unemployment benefits to 20 beginning next year. Missouri followed suit this week.
More May Follow
Similar reductions have been proposed in Arizona, with a 9.6 percent rate, and Florida, where it passed the House last month. Sunshine State unemployment is 11.5 percent. Arkansas Governor Mike Beebe, a Democrat in a state with a 7.8 percent rate, last month signed a law freezing benefit payments and shaving one week from them.
Indiana Governor Mitch Daniels, a Republican, in February also signed a bill tightening eligibility, part of a measure he said would allow the state to repay by 2019 the $2 billion it has borrowed.
New Jersey Governor Chris Christie, also a Republican, in February proposed cutting maximum weekly benefits by $50, to $550, warning of tax increases.
Other states may follow, said Michael Leachman, an analyst who follows state budget issues for the Center on Budget and Policy Priorities, a Washington-based research organization that advocates against cuts to programs for the poor.
Feeling the Heat
“We’re very concerned that there will be significant pressure on state legislators to sharply cut unemployment benefits,” he said.
In addition to causing distress for those in need, such cuts could hobble the economy because recipients soon funnel all the money back into businesses, he said. “That is really helping keep state economies going when demand is down, and that’s really needed,” he said.
In Missouri, the state senators’ concerns about spending coincided with business’s desire to stave off tax increases. Under a compromise the Chamber of Commerce helped broker, the Legislature cut state-paid benefits in the future by six weeks, to 20. In return, more than 10,000 currently unemployed residents can still collect the maximum federal-paid benefits.
Democratic Governor Jay Nixon signed the bill April 13.
“When our friends and neighbors lose their jobs through no fault of their own, it’s up to all of us to help them get back on their feet and back to work,” Nixon said in a statement.
The state Chamber of Commerce says the cutbacks will save businesses as much as $124 million a year in taxes.
“What we’re trying to do is position the state in the best possible spot coming out of this recession,” said Mehan, the chamber’s CEO. “If you can make it easier on employers to actually hire these people and keep them off the rolls, we think that’s a great tradeoff.”
Lembke, the Republican senator who led the opposition to the extended unemployment bill, said he was mollified by an agreement to return $250 million of other economic-stimulus funds to Washington in exchange for allowing residents to keep collecting additional U.S. benefits.
He said some constituents questioned whether paychecks for the unemployed were the right place to press the issue of Washington’s profligacy.
“The states need to start taking a stand against a federal government that will not live within its means and will not control it’s spending,” he said. “My goal all along was to send back as much stimulus money to Washington as possible.”
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