US bills states $1.3 Billion for interest

[❤ mollymouser ❤]

FULL STORY: www.nytimes.com/2011/01/15/us/politics/15stimulus.html?_r=2&hp

U.S. Bills States $1.3 Billion in Interest Amid Tight Budgets

As if states did not have enough on their plates getting their shaky finances in order, a new bill is coming due — from the federal government, which will charge them $1.3 billion in interest this fall on the billions they have borrowed from Washington to pay unemployment benefits during the downturn.

The interest cost, which has been looming in plain sight without attracting much attention, represents only a sliver of the huge deficits most states will have to grapple with this year But it comes as states are already cutting services, laying off employees and raising taxes. And it heralds a larger reckoning that many states will have to face before long: what to do about the $41 billion they have borrowed from the federal government to help them pay benefits to millions of unemployed people, a debt that federal officials say could rise to $80 billion.

The states, when they borrowed the money, hoped that the economy would have turned around by the time the first interest payments came due, or that future Congresses might loosen the terms. But the economy did not turn around in time and the new Congress, dominated by Republicans determined to shrink the size of government, shows little appetite for deepening the federal deficit by bailing out the states.

The problem is not only the staggering number of people who have lost their jobs, but the fact that many states entered the downturn with too little money salted away in the trust funds they use to pay unemployment benefits, which they are supposed to build up in good times by taxing employers.

Those anemic trust funds ran dry quickly in many states as millions of newly jobless Americans began collecting benefits. So many states borrowed money from the federal government, helped by the stimulus act, which gave them a break on interest for nearly two years. But that grace period ended Dec. 31, and states will owe the first interest on those loans in September.

Michigan, which owes Washington $3.7 billion, is supposed to pay $117 million in interest by September — just about what it pays each year to run Western Michigan University. California, which owes $362 million in interest on a total debt of $9.7 billion, the highest in the nation, plans to juggle its accounts, borrowing from a trust fund for disabled workers to pay interest to the federal government.

In New York, which owes $115 million in interest on $3.2 billion, the cost will be passed on to employers in the form of a tax surcharge. Texas went to the bond market and borrowed $2 billion to pay back all the money it borrowed from the federal government, judging that the interest on the bonds, which are backed by a tax on employers, would cost less.

Some states are planning to follow the lead of Texas, and borrow the money to repay the federal government. Others are asking for more time.

“During this time of extreme economic stress not only on the citizens of our states, but also on state budgets, state loan interest payments that will come due in September 2011 place further hardship on states’ finances and could slow economic recovery,” a group of 14 governors from both parties wrote to Congressional leaders last month. Their letter added: “Extending the interest-free loans would allow states to avoid increasing payroll taxes, reducing benefits, or both, while the economic recovery continues.”

Many advocates believe that the new Republican majority in Congress, which has said it plans to focus on deficit reduction, may be hesitant to postpone collecting the interest. But they could face pressure from newly elected Republican governors in states like Michigan, Ohio, which owes $2.3 billion, and Florida, which owes $2 billion.

[deziloooooo]

"But the economy did not turn around in time and the new Congress, dominated by Republicans determined to shrink the size of government, shows little appetite for deepening the federal deficit by bailing out the states. "
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There is still a Democratic led Senate, a Democratic President, just a Republican led House. These House Representatives have to back to THEIR states and constituents in two years for election, The Senate, I think it's a 1/3 of them up for reelection, , and while they might not be happy about helping the States out, they are politicians who want to come back to DC.

States always had to repay what they borrowed from the Federal I believe, possible the interest could be mitigated , basically how do you get water from a stone. States don't have it, any of them and some are in desperate trouble as we know.

I Think it's something that the President should sit down with both sides to see what they can work out. Those who won't go along, so they will answer to their States leadership, no matter the party, and most importantly to their constituents who will be well aware if they did not go along with relief and take their chances.

I think it's a solvable problem.

[burnsattornincan]

I think it's a solvable problem.

That is to laugh. I guess you mean by solving the problem they will just print more money? If you haven't figured it out yet, every facet of the United States is insolvent. Nothing adds up to zero (fiscal balance) even if you outright confiscate the wealth of every US citizen. You will need to fight one day. Just what exact day that may be is the only thing "unsolvable".

[deziloooooo]

Arent you glad your a Canadian and arent faced with these problems..just sit before a nice fire and watch us impload.

PS Moon you are so good , ask and we some how get..the peace sign, thank you, for you darlin

[burnsattornincan]

Nice little montage Mr. deziloooooo. Unfortunately for me and all other Canadians we are not in a position to sit back by the fire and watch you self destruct as you should. Your gluttonous country will be looking for resources, the resources we have because we have lived within our means and take life as one little good job done followed by a much deserved repose while you people are on auto-pilot 24 hours a day. You should get what you deserve but I'm not so sure that will be the case. Rest assured there will be some tough resistance, something like what your forefathers experienced almost 200 years ago.

[deziloooooo]

" Your gluttonous country will be looking for resources, the resources we have because we have lived within our means and take life as one little good job done followed by a much deserved repose while you people are on auto-pilot 24 hours a day"
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Son of a xxxxx..there you are absolutly, 100% correct..so you will sell us that stuff right ...not the Chinese???
Think your doing it already actually...and more then Maple Sugar.

[verrip1]

'Affordable'. What a joke.

Try estimating what will happen when the interest rate hits a relatively modest 8%, let alone the 18% or so it hit when Jimmy Carter was President. The current 10 year Treasuries will be below 50% of par.

[handyman2]

What is the government going to do with many states close to bankrupycy or in the case of some actually being bankrupt? Reposes every state?
If I remember correctly it was the federal government who extended the unemployment benefits and rightly so. So why do they expect the states to pay for their actions?

[deziloooooo]

They extended it...but do the States HAVE to accept the extension?
Any one know? I don't know how a governor would stay in office if they refused but that would be their call. They know they have to pay it back , with interest, there is no secret, but where do they get the money for it, to pay it back, but to raise local taxes...

The money is gone, given to the unemployed.If they spend it there is the tax revenue but it's not seperated , to be used to repay the loan..plus not enough, and any way spent on general budget things.

A catch 22 situation, possible some of the doom and gloom ones have it right? Where's traelin0 when you need him.{bet he shows too}

[burnsattornincan]

Where's traelin0 when you need him.{bet he shows too}

You win.