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Arizona businesses eye tax hike for jobless benefits

In a somewhat unusual turn of events, Arizona’s tax-averse business community is asking state lawmakers for what amounts to a temporary tax increase for employers.

A bill to levy a special assessment of $70 on employers over two years for unemployment benefits is advancing in the Legislature.

Like many other states burdened by high job losses, Arizona has been forced to borrow from the federal government to pay benefits to the unemployed. Arizona owes the federal government $268.1 million for unemployment trust fund loans, part of $42.3 billion owed by a total of 30 states as of Jan. 21, while an additional five states have repaid their loans, according to the National Conference of State Legislatures.

States are taking a variety of approaches to cope with the unemployment funding crunch. States that have approved rate increases or approved special assessments include South Carolina and Nevada, and Indiana lawmakers are considering a surcharge.

Meanwhile, West Virginia may borrow from its rainy day fund to avoid federal borrowing, Connecticut officials are deciding what to do, and Florida lawmakers are weighing whether to allow an automatic unemployment tax increase to take effect to cover the state’s loans. Minnesota’s tax has automatic adjustments that have already raised key components to their ceilings.

In Arkansas, business and labor groups are exploring a possible compromise on how to repay the borrowing. The Arizona bill, which would cost employers a projected $28 per employee this year and $42 next year if approved, would repay the federal government for principal and interest on the borrowing and replenish the state’s unemployment trust fund. Arizona employers in 2010 paid $56 per employee to the federal government and $146 per employee to the state for unemployment.

Business groups say they’re trying to come up with a repayment plan on their own terms to avoid having one imposed by the federal government that could cost employers far more. Employers would lose tax credits that significantly reduce their federal unemployment tax payments if the state still has an unpaid balance by November 2012.

“If the feds take over and force repayment of the debt, they do it on their terms and they’re going to be very aggressive about it,” said Marc Osborn, a lobbyist for a coalition that includes dozens of business groups and major employers. “The cost to employers is going to be much greater.

“It’s all about certainty,” he added.

There is little opposition to the Arizona legislation so far, but that doesn’t mean it faces a smooth path. To avoid triggering a state constitutional requirement for two-thirds votes by each chamber of the Legislature for approval of tax or fee increases, the legislation only authorizes the special assessment without specifying its amount. An agency director would do that, though the legislation includes “intent” wording that says what it should be.

That doesn’t fly with some lawmakers. “To me this is a tax and I’m having a hard time saying it’s not a tax,” said Rep. John Fillmore, one of three majority Republicans who voted against the bill when a House committee endorsed it on a 6-3 vote.

Fillmore owns a fireplace and stove store and he said he’s worried that the special assessment would add to his business costs.

With a trust fund that was in healthy shape until recently and with one of the lowest benefit levels in the country at a maximum of $240 weekly, Arizona was a relative latecomer to the parade of states lining up for federal loans.

Arizona began borrowing in March 2010, while at least 23 states with current balances began borrowing earlier, starting with Michigan in 2006. Hawaii in January became the most recent state to start borrowing, according to the NCSL.

Arizona business groups proposed last year that lawmakers take on the loan-repayment issue, but Osborn said it didn’t gain much traction then because of hopes an improving economy would make an assessment unnecessary and because 2010 was an election year.

“It gave some people some pause,” he said.

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Associated Press writers Bill Kaczor in Tallahassee, Fla., Sandra Chereb in Carson City, Nev., Jim Davenport in Columbia, S.C., Deanna Martin in Indianapolis, Larry Messina in Charleston, W.Va., Andrew DeMillo in Little Rock, Ark., Martiga Lohn, in St. Paul, Minn., and Susan Haigh in Hartford, Conn., contributed.

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