Colorado is borrowing hundreds of millions of dollars from the federal government to keep afloat its unemployment-insurance fund, which will go broke in two weeks without the cash infusion.
Don Mares, director of the state Department of Labor and Employment, told lawmakers about the fund’s precarious condition Thursday at a meeting of the Joint Budget Committee.
Unemployed workers who get benefits won’t be affected, officials said, but premiums paid by employers are likely to increase.
“Like all states, Colorado has been hit hard,” Mares said later in a statement. “More people are tapping into the benefits.
“In November of 2009, we processed 22,222 new applicants. Just two years earlier, that monthly average was only about 11,100.”
Colorado’s unemployment rate in November was 6.9 percent. December numbers have not been released yet.
In addition to more claims, more higher-wage earners — who get more in benefits — are losing their jobs, officials said.
In November, about $94 million in benefits was paid from the fund, compared with $42 million the same month in 2008 and $21 million in November 2007.
There was roughly $30 million in the fund as of last month, labor officials said. That’s compared with a peak of about $700 million in the fund before the recession.
“During the past calendar year, we will have paid out roughly $1.1 billion,” said Wayne Peel, the Labor Department’s budget director.
In the last downturn in the early part of the last decade, the state paid out as much as $56 million a month in unemployment benefits. During the current recession, it’s already broken the $100 million-a-month mark on multiple occasions.
The borrowing will come in the form of monthly lines of credit to the state. Colorado has requested up to $80 million in both January and February and up to $110 million in March.
“We anticipate having to borrow on and off over the next couple years,” Peel said.
Joins 25 other states
The loans would be interest-free this year, but the state could face interest on borrowing after that. If the state were being charged interest today, the rate would be a little more than 4.5 percent, Peel said, adding that the rate could be different next year.
Also, state officials said, the federal government may extend the interest-free borrowing period for states.
Colorado, which has not had a federal bailout of its unemployment fund since the 1980s, would join 25 other states that have borrowed about $26 billion from the federal government to keep their unemployment-insurance funds solvent during the current recession. State labor officials said it’s expected that 40 states ultimately may end up borrowing to bolster their unemployment funds.
Business groups immediately expressed concern about whether employers would see steep increases in their unemployment-insurance premiums.
The Colorado Association of Commerce & Industry and other business groups have been talking with the department for the past couple of weeks and mulling possible legislation, said Loren Furman, the group’s vice president of governmental affairs.
Some employers could see premiums triple once it comes time for the state to repay its federal loans with interest, she said. Those increases won’t be easy to absorb, given that many businesses are losing money, and it could dampen future hiring.
“It is pretty scary, and we are hoping we can come up with some solution,” she said.
Peel said employers probably wouldn’t see any rate increases until 2011, and it was unlikely that most employers would see a tripling of their rates.
Based on many factors
The maximum base-rate premium employers pay is 5.4 percent of the first $10,000 a worker earns. Many employers pay far less than that, Peel said, explaining that — similar to other kinds of insurance — rates are set based on a variety of factors, including the type of employer and the employer’s history of laying off workers.
“If they’ve been laying off a lot, then yes, their rates will go up because of that,” Peel said.
He said that because of the need to replenish the fund, rates generally will go up, but officials could not say by how much.
Rep. Jack Pommer, D-Boulder, chairman of the Joint Budget Committee, said some lawmakers were concerned that if the state were charged interest on the federal loans, all employers would see a proportionate increase in premiums, regardless of their claims experience.
Staff writer Aldo Svaldi contributed to this report.
