How will SC pay off its $800 million debt?

COLUMBIA -- South Carolina and other cash-strapped states borrowed a total of about $31 billion from the federal government over the last two years to provide their unemployed workers with benefit checks, and now as the country climbs out of recession the states must find a way to pay it back.

John Rainey, South Carolina's chief economic adviser, said the state needs to take calculated steps to repay its $800 million debt, while some others hold out hope that the federal government will forgive the loans.

Rainey said the federal government should have no place in erasing the debt that will largely be the responsibility of the business community to pay back.

Unemployment benefits, financed through state payroll taxes, are available to 130 million American workers who meet eligibility requirements.

"People in this country won't stand for it," Rainey said. "This will be one bailout too many. There is a populist sentiment moving through this country. The polls show that people are afraid of more government. I think the strategy of hope has always been alive and well in South Carolina. But it is not a valid strategy for business or government."

South Carolina does not yet have a plan to pay back the money.

U.S. House Majority Whip Jim Clyburn, D-S.C., said it is too early to talk about forgiving the debt, but he and other Congressmen are studying ways to address the issue.

U.S. Sen. Lindsey Graham, R-S.C., had not taken a public stance on the matter so far, but his office said the senator will work with state officials to make sure South Carolina is treated fairly and equitably in whatever action the federal government may take.

State Sen. Greg Ryberg, R-Aiken, said he would support a decision by the federal government to forgive the debt, but it is the state's responsibility in the meantime come up with a plan to pay it back.

Ryberg has been leading talks in the Senate on a plan to overhaul the Employment Security Commission, which oversees the Unemployment Insurance Trust Fund. The fund went broke at the end of 2008 after the balance fell steadily from a high of nearly $800 million in 2000.

The state's debt is projected to grow to $1.28 billion by Dec. 31 if the unemployment rate averages 12 percent this year.The unemployment rate reached 12.6 percent in December, the last month for which data is available. In addition to repaying the federal loans, the state will be responsible for an estimated $350 million in interest, and legislators must find a way to rebuild the state's unemployment fund.

Companies in South Carolina currently pay into the unemployment fund between $87 and $427 a year per employee, depending on several variables. The rate is expected to increase, although legislators are looking for a way to reward companies that rarely lay off workers.

Raising fees on businesses now will slow the state's economic recovery because every dollar spent in taxes is a dollar that is not available to hire more staff or expand operations, Rainey said. He blames the "incompetence of government" for failing to heed warnings that the fund was going broke and the "indifference of the business community" for standing idle as the problem worsened.

Samuel Foster, interim executive director at the Employment Security Commission, said the agency has not taken a position on loan forgiveness.

"Some people tend to think there may be some forgiveness of the loans, because they don't know how states will begin to pay," Foster said. He said one reason why states may not have formally petitioned the federal government to forgive the loans is because it is not known how much longer the states will need to borrow money.

Gov. Mark Sanford's communications director Ben Fox said the state must reform the troubled agency regardless of the debt. A head-to-toe review of the Employment Security Commission released about a month ago by the Legislative Audit Council showed widespread mismanagement.

"First, even discussing this possibility of federal debt forgiveness is yet another indication of the severity of the problem we've talked about for a year and a half now -- a mismanaged agency in the ESC that lacks real accountability, that has run up a near billion-dollar deficit in the Unemployment Trust Fund," Fox said.

House Majority Leader Kenny Bingham, a Cayce Republican who shepherded a plan to overhaul the agency through the House last week, said he has to learn more about the impacts of forgiving the debt on the federal level before he would make such a request.

"Ultimately, somebody's got to pay that money back," he said. "There is no free money, not in government."