The state of Michigan may eventually have to significantly raise business taxes as it faces a deficit up to $15 billion in its unemployment trust fund, Bridge Magazine reports, citing an economist at the Upjohn Institute in Kalamazoo.
The state says the fund, which had $4.6 billion ahead of the crisis, could be drained by July in a worst-case scenario. The University of Michigan projects 1.2 million jobs will be lost by mid-summer.
In the short term, the state can bridge the gap with a zero-interest loan available from the federal government through year-end. But unemployment is funded through a payroll tax on employers, and they'll eventually be responsible for helping cover the losses.
Bridge provides historical context from past downturns:
In 1982, the state Legislature initiated a four-year plan to repay $2.2 billion in unemployment debt stemming from recession. That followed $624 million in borrowing in the 1970s. By August 2010, Michigan had borrowed $3.8 billion to cover unemployment payments during the Great Recession. In 2011, employers had to pay an additional $240 million into the fund.
O’Leary cautioned, “annual tax rates for contributing Michigan employers would probably double” if the state needs to seek a federal loan that isn’t covered by the interest-free provisions.
Municipal bond financing also is an option if the state needs more unemployment funding beyond this year. That option was used a decade ago, with the most recent one only recently retired.
A business advocate at the Michigan chamber tells Bridge employers are already concerned.
