COLUMBUS, Ohio — This week marks the first time in a decade that Ohio needed federal funds to pay out state unemployment benefits. This comes after the state’s unemployment fund ran out of money earlier this week after the state went from an unemployment rate of 4.1% in February to 16.8% in April.
“The state has requested basically a line of credit of $3.3 billion in borrowing authority from the U.S. Department of Labor,” Governor Mike DeWine told the state at his Tuesday news conference. “That total exceeds what we think we will need to pay out in benefits.”
"The good news is that at least at this moment there is no interest being charged by the federal government,” DeWine said.
That's thanks to the CARES Act but that's only through the end of this year then anything the state borrowed comes with a 2.4% interest rate.
Although the unemployment checks bare the state's name, it's the state's businesses that will be the ones repaying the debt through FUTA or the Federal Unemployment tax act. It's a tax on employers used to create the Federal Unemployment Trust Fund.
The tax rate paid by businesses is 6% on the first $7,000 an employee earns but that's whittled down through discounts to just .6%, so $42 a worker.
When your state borrows from the federal government, like Ohio is doing, those employers are forced to pay .3% more each year until that debt is repaid.
So they'd go from $42 a worker to $63, to $84 to $105.
Ohio is familiar with the math as they were one of 30 other states that had to this during the last recession borrowing $3.3 billion.
"From the time it started borrowing in 2009 Ohio worked diligently to pay down the borrowing balance and the final payment was made in 2016,“ he said.
Ohio is one of the first states along with Texas and California to borrow this time is evidence of a broader problem the governor said, that has been lying just beneath the surface.
"We've got a long term structural problem that needs to be fixed and needed to be fixed prior to the coronavirus additional problem,” he said. “But we've known for a number of years that this is a problem that has to be addressed. It's a lot easier to address it when the economy is going up.”
