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Since the American Recovery and Reinvestment Act became law on Feb. 17, 2009, a few Republican governors have said they don't intend to accept some of the money, saying it comes with too many strings attached.
That includes Gov. Bobby Jindal of Louisiana, who appeared on Meet the Press on Feb. 22.
"Why would you turn down $100 million for federal unemployment assistance for your state?" asked moderator David Gregory.
"You're talking about temporary federal money that would require a permanent change in state law," Jindal said. "The $100 million we turned down was temporary federal dollars that would require us to change our unemployment laws, that would've actually raised taxes on Louisiana businesses. We as a state would've been responsible for paying for those benefits after the federal money disappeared."
Gregory then quoted Louisiana's Democratic senator, Mary Landrieu, saying that Jindal's claims were "inaccurate," but Jindal stuck by his statement.
First, we have to note that while $100 million sounds like a lot, it is actually a relatively small portion of Louisiana's stimulus package. Jindal has said he intends to accept federal money that will pay for a $25 per week increase in benefits for unemployment recipients, as well as money for transportation projects. Landrieu says the transportation money should total $430 million, and that the state will get $718 million in stabilization funds aimed at schools, and another $752 million for agriculture and rural development. When you factor in money to the U.S. Army Corps of Engineers and other federal projects, Louisiana will ultimately receive "billions" from the package, Landrieu said.
But Jindal is rejecting money that the federal government is offering states to loosen their rules governing unemployment compensation. (Find it under Sec. 2003, "Special transfers for unemployment compensation modernization. ) The incentive varies by state, but Louisiana's take is about $100 million, or more precisely $32.8 million with the potential for another $65.6 million.
The first change the federal government wants is known by the lovely jargon "alternative base." It makes slight changes to the formula states use when determining if workers qualify for cash payments. Basically, it would allow more low-wage and seasonal workers to be eligible for unemployment, a method already used by 19 states.
Jindal believes this change would cost Louisiana up to $12 million a year, and the experts we consulted said that estimate sounded about right. After Louisiana used the $32.8 million, it would have to come up with $12 million a year on its own.
If Louisiana agreed to that measure, it could try for the $65.6 million by extending its unemployment provisions even further — such as covering people who seek part-time work or those who leave their jobs for a "compelling family reason."
To take only the first provision into account, Jindal is saying that Louisiana would get $32.8 million in funds up front for potential ongoing expenses of $12 million a year, which he says is not much of a deal. And he is saying businesses, which pay the taxes that fund unemployment compensation, would get a tax increase to pay for that.
But he sidesteps two key points: The $12 million a year is not a solid number — it could conceivably drop if the economy improves and more people get jobs. And state officials may decide to pay for it in ways other than a tax increase.
Wayne Vroman, an economist with the nonpartisan Urban Institute who studies unemployment insurance, said there's a good chance the tax increase would not be needed.
"There's a kind of balance through having more stimulus that would tend to reduce future taxes," Vroman said.
A business-oriented group, UWC-Strategic Services on Unemployment & Workers' Compensation, was less optimistic about avoiding a tax increase, but the group's president said it's not clear how much taxes would have to go up.
"I think it's fair to say that there would be some increase in taxes to pay for additional payouts," said Doug Holmes. "How much will that be? When would the tax kick in? It's really hard to speculate about that."
Holmes also said that business taxes for unemployment in most states will rise dramatically next year regardless of whether states take the incentive money or not. That's simply a function of the downturn in the economy and the way the taxes are calculated.
Clearly, Jindal's comment is speculative in some respects. But it's also logical to think that expanding unemployment insurance will cost more, and that the government will have to find that money, possibly increasing taxes on the employers who pay into the fund. On the other hand, some states might be better off giving workers the money and getting their local economy back into gear. Certainly the stimulus bill itself does not specify tax increases for unemployment.
Given all these factors, we find that Jindal's statement is largely correct. He is right that the $100 million he turned down would have required Louisiana to change its unemployment law. But he can't be sure that it would mean higher taxes based on that alone. It depends how the economy rebounds and how the costs are allocated. The law itself does not require tax increases. For this reason, we find his statement Mostly True.
Meet the Press, Interview with Bobby Jindal , Feb. 24, 2009
Gov. Bobby Jindal Web site, Governor Jindal Declines Stimulus Provision that Would Result in An Unemployment Tax Increase on Businesses , Feb. 20, 2009
Sen. Mary Landrieu, President Signs Economic Stimulus Package that Directs Billions to Louisiana for Projects, Tax Relief , Feb. 17, 2009
National Employment Law Project, What is an "alternative base" period and why does my state need one? , April 2003
Interview with economist Wayne Vroman of the Urban Institute
Interview with Doug Holmes of UWC - Strategic Services on Unemployment & Workers' Compensation
National Employment Law Project, Get the Facts Straight, Governors , Feb. 23, 2009
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