Resolution Supporting the Extension of the Moratorium on State Interest Payments to the Federal Unemployment Account

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WHEREAS, the American Recovery and Reinvestment Act of 2009 included a moratorium on interest payments on state loans from the Federal Unemployment Account which expires on December 31, 2010;

WHEREAS, during the past three years, states have faced the longest recessionary period since the Great Depression;

WHEREAS, state fiscal health generally lags behind a national recovery, thus making it likely that it will be several years before state income and expenditure patterns normalize and the fiscal crisis subsides;

WHEREAS, the unemployment insurance system fiscal crisis is caused, in part, by high and sustained levels of unemployment, thus causing state expenditures on unemployment benefits to increase dramatically, outpacing tax receipts and leading to insolvency or an increased risk of insolvency in state unemployment insurance trust funds;

WHEREAS,when facing good economic conditions in the past, many states have lowered unemployment insurance tax rates and expanded unemployment benefits, thus creating an unsustainable model at high risk for insolvency when economic conditions deteriorated;

WHEREAS, 31 states have borrowed $40 billion from the Federal Unemployment Account to maintain solvency in their unemployment insurance trust funds and continue to administer unemployment benefits to their citizens, and over the next two years, the number of states borrowing from the fund and the total amount borrowed will likely increase significantly;

WHEREAS, instability and insolvency in state unemployment insurance programs have lead to tax increases on employers, decreased benefits to unemployment recipients, and has led or likely will lead to increased taxes or deeper cuts in other state programs;

WHEREAS, the primary purpose of the unemployment insurance system is to be an automatic economic stabilizer, providing the unemployed with funds to take care of essential expenditures to maintain household purchasing power and ensure continued economic activity during a downturn or recession; and

WHEREAS, the added burden of interest repayment at this time may encourage further increases to unemployment insurance tax rates and cuts to benefits or other state programs, which will have adverse economic effects, such as weak job growth and decreased demand, thus contributing to slower economic recovery.

NOW, THEREFORE BE IT RESOLVED, that The Council of State Governments urges that the United States Congress extend the moratorium in place under the American Recovery and Reinvestment Act of 2009 on the payment and accrual of interest on state loans from the Federal Unemployment Account; and

BE IT FURTHER RESOLVED, that a copy of this resolution shall be forwarded to each member of the United States Congress and to the President of the United States.

Adopted by the Governing Board this 6th Day of December, 2010 at CSG’s 2010 National Conference in Providence, Rhode Island.

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