The state of South Carolina for several months has been borrowing money for all of the unemployment checks it pays out. The borrowed amount was $16 million last week alone.
The Board of Economic Advisers conducted its third meeting with employment security Commission officials Tuesday, to discuss how to rebuild the state’s Unemployment Trust Fund and repay funds borrowed from the federal government’s pool of unemployment loans.
By the end of this year, the state of South Carolina will owe the federal government $750 million.
Currently the board is looking at a recommendation that would repay $1 billion in loans, beginning the first of 2011, using a reduction in the federal credit against the state unemployment tax paid by businesses. According to federal law, the state must pay the interest on the loan, which will amount to $350 million. At that rate, it will take the state until 2019 to pay off just the borrowed money.
But the state has also depleted it Unemployment Trust Fund. Board of Economic Advisers Chairman John Rainey says to approach the level of $1.1 billion in trust fund savings recommended by the federal government, in a period of 2.5 to 3 years, the board will recommend increasing the employee wage base from $7000 up to the national median of $14,000, and putting a surcharge on unemployment compensation paid by all employers.
The wage base is the amount of a worker’s salary which a state government uses to compute unemployment tax. A state government must use at least $7000 and that’s what South Carolina uses.
Rainey says the wage base rate or surcharge could be reduced after the emergency, depending on the desires of the General Assembly.
Officials say an extra $454 million could be generated by increasing the state tax contribution by one percent.
Rainey says state lawmakers must pay attention to this very serious need because their approval is required. He said the General Assembly can’t put it off just because of election concerns. “This an opportunity, but a necessity. We have sounded the dreaded fire bell in the night. It’s a $2 billion problem. Put in perspective, that’s 35 percent of what the BEA projects our revenues to be for this year, for the entire state, which is roughly $5,750,000,000. There’s always a reason to put off tough problems. We can’t continue to deny the problems in this state. It’s a state of denial. That’s why we have leaders, to lead us through the tough times. As well as through the good times. These are the tough times.”
Rainey says the timing of the financial dilemma is not good, but it’s real. “It couldn’t come at a worst time. A gut-wrenching recession, the worst time since the Great Depression. It’s unfortunate that these funds have to be siphoned off of creating jobs, building plants and equipment, and helping us come out. But the federal debt must be repaid.”
Employment Security Officials say within one year, South Carolina will owe the federal government at least $1 billion.