Obama cuts California a break on loan repayment

February 8, 2011 12:00:00 AM PST
President Barack Obama wants to cut California and about 30 other states a break in starting to pay back federal loans used for unemployment checks -- a two-year delay. With the state facing such a huge budget deficit, any delay could be a godsend.

The recession hit California so hard, the state had to borrow $10 billion from Washington to keep the unemployment checks flowing. Now President Obama is proposing to give states some relief by postponing the first two interest payments by a couple of years. That would save California from having to pay the feds $362 million this year, and probably even more next year.

"To the extent the president can delay unemployment funds we're supposed to pay, great," Gov. Jerry Brown said.

While more than 30 states took out federal loans for unemployment, the delayed payments would be especially helpful for California considering it faces a massive budget deficit.

"Anything less we have to spend is helpful because we're already $25 billion in the red," Brown said.

The unprecedented debt, though, automatically triggers higher unemployment insurance taxes for businesses. Part of the president's plan to delay the interest payments includes states agreeing to push those tax increases until 2014. While that helps put more money into the unemployment insurance fund, it does nothing long term for California's debt.

"We've been operating with the same structure for unemployment insurance benefits since 1984. It is antiquated and will no longer work. This fund cannot recover on its own," Loree Levy from the California Employment Development Department said.

If Obama's plan is adopted, the bottom line for California is the state will be able to keep the unemployment checks flowing during this recession, without having to raise taxes or raid another fund to pay for them. But the bill still will come due in two years.

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