Bailout loan to help agency cope

The state-run pool of money that pays out unemployment benefits is about to run out of funds, but that doesn't mean that the checks will stop flowing to out-of-work residents.

The S.C. Employment Security Commission has asked the federal government for a roughly $160 million bailout loan, which officials estimate will tide the agency over until April.

Borrowing money from the specially designated federal trust fund, which currently holds about $35 billion, is standard protocol for state governments that face financial shortfalls. A dozen states, including New York, Ohio and California, have unemployment funds that could soon become insolvent.

But failure to pay back the money could have consequences for local businesses if state lawmakers don't fix the problem after two years. And state leaders will likely need to reform the way that money flows into the fund, which has drained money even during booming economic times.

In October, South Carolina officials asked for a $15 million loan to supplement that remaining $64 million in its unemployment insurance trust fund. They've requested an additional $146 million for the first quarter of next year.

The state won't owe any interest on the loan if it repays the money before Sept. 30. After that, it will be charged a modest rate.

However, if state officials don't repay the money within roughly two years — or November 2010 in South Carolina's case — local businesses begin to lose a portion of a federal tax credit.

To encourage states to have solvent unemployment insurance funds, the federal government lowers an annual tax on businesses to $56 per employee, said Andrew Stettner, deputy director at National Employment Law Project.

If a state doesn't repay the borrowed funds within the two-year threshold, that tax credit is slowly repealed, adding an extra $14 per employee for every year the fund remains insolvent, Stettner said.

"It's an effort to get the state to take care of its own house," he said.

The national economic meltdown has led to higher unemployment rates across the country, putting strain on unemployment insurance funds. South Carolina, which saw its jobless rate hit a 25-year-high of 8 percent in October, is one of 11 states with trust funds running dry, according to the Economic Policy Institute.

But while the deepening economic troubles have led to a higher number of insurance claims in the past few months, state records show that the fund's value has fallen consistently, beginning seven years ago.

Money flows into the fund through a tax that South Carolina businesses pay for each employee. But even during periods of economic growth, the fund money drained.

"Once we get out of this recession, then we really need to sit down and readjust rates or reconsider how we fund it," concluded Don Schunk, research economist at Coastal Carolina University.

Ted Halley, executive director of the S.C. Employment Security Commission, told The Associated Press that funds began depleting about seven years ago — the last time that state lawmakers increased the rate employers pay to fund benefits.

Several years ago, employment commission leaders unsuccessfully approached state lawmakers, who receive annual reports about the fund's value, to discuss reforming the unemployment insurance fund.

Reach Katy Stech at kstech@postandcourier.com or 937-5549.