Brian O'Connor

Michigan goes into debt to aid jobless

The state posted a 12.9 percent April unemployment rate, a jump of three-tenths of a percentage point that's likely to keep Michigan at the top of states with the worst jobless levels in the nation.

It's also likely to keep Michigan at the top of another bad news list: states borrowing federal money to pay unemployment benefits. As of May 15, Michigan owes the U.S. Department of Labor $2.2 billion.

"In a nutshell, we're paying out more benefits than we're collecting," said Stephen Geskey, director of Michigan's unemployment insurance agency.

The state isn't alone. Thirteen others, including our Rust Belt neighbors in Ohio, Indiana, Wisconsin and Kentucky, are running tabs with the federal government so they can cut unemployment checks.

Normally, state unemployment is paid by a tax on private, for-profit employers. That was enough to cover Michigan's growing unemployment costs in 2006 and 2007, when the state borrowed money from the federal labor department but was able to repay it, said Norman Isotalo, a spokesman for the state Department of Labor and Economic Growth.

But during the second half 2008, the state started running behind and the debt ballooned.

"We have about 470,000 people who are claiming unemployment benefits," Isotalo said. At the 2008 average, that's a total of about $141 million in unemployment checks every week. "There's a lot of money going out in benefits right now."

Michigan paid 4.8 percent interest on its debt to the U.S. labor department last year, and was ready to collect a state "solvency tax" from employers this year, until the Obama administration waived interest on the loans for this year and next.

That spared employers a $40 million tax hit, but only for the moment. Under federal law, the borrowed money will have to be repaid through the Federal Unemployment Tax, state officials said, starting in 2010.

That will cost employers about $21 per worker per year, in addition to regular state unemployment taxes that increase when companies lay off workers who collect more in benefits than employers have paid in to the state system.

The effect, however, could be to dampen the recovery or deepen the losses to businesses still struggling to rebound, and could mean more layoffs, delayed hiring or other cutbacks for business, said Wendy Block, director of health policy and human resources for the Michigan Chamber of Commerce.

"That extra $21 is going to have to come from somewhere," she said. "The only other alternative would be to increase taxes in some other way through the system. There's really no good alternative to the future tax increase."

GM is jobless wild card

It's no surprise that Michigan, carrying the nation's worst or near-worst jobless rate for years, tops the list of states borrowing to pay benefits. Michigan's balance is 69 percent higher than New York, No. 2 on the list with $1.3 billion in borrowing.

State residents who qualify for jobless benefits collect an average of $299.58 a week, based on 2008 levels, and about 18,000 more ex-workers started needing those benefits in April. That lifted the unemployment rate from 12.6 percent in March to 12.9 for April. The rate compares to 7.9 percent in April 2008, when, according to state figures, there were 234,000 fewer unemployed Michiganians.

Most of April's job losses came in manufacturing and construction, with other sectors declining by 1,000 jobs or less, or even holding steady in a few cases. That could signal that the state jobless level is nearing a bottom, said Brian Cullen, a recruiter with the Southfield office of Ajilon Professional Staffing LLC.

"We haven't seen as much in the way of mass layoffs that we saw in the fourth quarter and part of the first quarter, so some of that has stabilized," he said.

But that lull in big layoffs could be temporary, he said, depending on the restructuring efforts at General Motors Corp., which could force the giant automaker to reorganize under bankruptcy protection, like Chrysler LLC.

"Everybody's kind of holding their breath," Cullen said. "What happened with Chrysler was one shoe and GM is the other shoe to fall. At that point everybody's going to have a better idea of what the landscape looks like."

But no one doubts that will include more people losing jobs, with economists forecasting jobless rates from 14 percent to as high as 20 percent before the state's worst is over.

And that will force more borrowing from the feds, said Block of the Michigan Chamber.

State employers will ultimately have to start repaying those loans under federal rules, along with any interest accumulated after 2010.

"It's going to take a number of years to pay back the principle on that $2 billion-plus loan," Block said. "It might be up to $3 billion or $4 billion by the end of it all if we don't turn the unemployment situation around."

boconnor@detnews.com (313) 222-2145