Schumer seeking to extend interest-free loans to states in September

Sen. Charles Schumer (D-N.Y.) is planning to introduce legislation that would extend the ability of states to borrow billions of dollars interest-free from the Federal Unemployment Trust Fund (FUTF) to help pay state unemployment claims, and said failing to extend this program would crush small companies in his state and possibly others.

The 2009 stimulus bill gave states the ability to borrow from the FUTF without paying interest, but that benefit will expire at the end of fiscal 2011, or Sept. 30. Schumer said the expiration means an interest payment will be due at the end of September.

New York borrowed $3 billion from the FUTF to help make unemployment payments, which translates into a $95 million interest payment. According to the National Conference of State Legislatures, 28 states plus the Virgin Islands have borrowed a combined $36 billion from the fund, which means other states will face the same problem New York is facing.

California is the largest FUTF borrower, at more than $8 billion. Other states that have borrowed more than $1 billion are Florida, Illinois, Indiana, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania and Wisconsin.

To cover interest payments that would come due next month, New York has imposed a surcharge on companies as high as $22 per worker, which Schumer said is too high given the fragility of the economy.

"This week, small-business owners are licking stamps to mail in checks to pay this painful tax, and it's leaving a bad taste in their mouth," he said, adding that his bill would allow companies to avoid this tax by extending the interest-free loan. "This bill would put $95 million back where it belongs — in the accounts of small-business owners who can hire new workers and drive our economic recovery."

Schumer's bill would retroactively extend the ability of states to borrow FUTF money interest free through 2012, and waive any interest payments due in 2011. He said this would allow New York to refund money collected from small companies.

"We need to free small-business owners from the shackles of this fee and instead help them invest in their business to create new jobs," Schumer said. "This is a whopping $95 million that should go to hiring more workers and reinvesting in businesses to help them grow."

The House and Senate are expected to return the week of Sept. 5, and are expected to face almost immediate pressure to figure out how to pass spending bills for FY 2012, or possibly a continuing resolution that reflects spending caps that were agreed to as part of the debt-ceiling agreement.