Hatch Calls on Secretary Geithner to Protect Taxpayer Dollars, Prevent State Bailouts

Concerned with state debt repayment proposals, Utah Senator writes, “Given the questionable impact of the Stimulus thus far, I am sure I am not alone in my hesitancy to essentially double down on these state bailouts.”

WASHINGTON – To ensure American taxpayer dollars are not misused for state bailouts, U.S. Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, today urged Treasury Secretary Timothy Geithner to provide a detailed analysis of the Administration’s proposal to waive interest payments and automatic debt repayments for states that have borrowed from the federal government to cover unemployment benefits. In a letter, Senator Hatch noted any changes to the loans, “…could rationally be viewed as a de facto state bailout, as these interest free loans are certainly not without cost to taxpayers.”

Below is the full letter Senator Hatch sent to the Secretary today:

February 16, 2011

The Honorable Timothy F. Geithner
Secretary
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220

Dear Secretary Geithner:

Beginning with the economic downturn of 2008, many states have faced significant budget challenges resulting from a combination of factors. As the U.S. Census Bureau recently reported, total state government revenues dropped nearly thirty-one percent in 2009 from 2008 figures. Due to the historic recession and the collapse in the housing market, states have experienced steep declines in revenue from sales, personal income, and corporate income taxes. At the same time that revenues have declined, many states have accelerated spending on certain health and welfare programs. These short term budget shortfalls come in addition to trends suggesting that the states will face significant challenges in meeting their long term obligations.

As the Ranking Member of the Senate’s Committee on Finance (“Committee”), I have a duty to oversee the manner in which federal agencies manage revenue and spending. Both state and federal taxpayers demand responsible fiscal stewardship that does not obligate future generations with the irresponsible spending decisions of today.

In recent years the federal government has provided billions in assistance to struggling states. The administration’s Fiscal Year 2012 Budget appears to include another such proposal. As I understand it, this proposal would waive interest payments and automatic debt repayments for two years on funds which states have already borrowed from the federal government to cover unemployment benefits. I am well aware of the financial struggles that many of our states face. However, I am concerned that this proposed delay in interest and principal payments could have several negative consequences. Modifications to the standard terms of these loans, however well intentioned, could reasonably be viewed as a de facto state bailout, as these interest free loans are certainly not without cost to taxpayers.

The Stimulus law, the American Recovery and Reinvestment Act of 2009 (“ARRA”), only froze interest payments on these loans through Fiscal Year 2010. So in the interest of transparency, it is essential that the public understand the administration’s rationale for the prolonging of this interest free treatment of taxpayer funds. Given the questionable impact of the Stimulus thus far, I am sure I am not alone in my hesitancy to essentially double down on these state bailouts.

In order to help facilitate proper consideration of the Administration’s proposal, I respectfully request that you provide my office with the following information:

1) Any statements or analysis detailing the financial impact of suspending (a) interest payments on state unemployment insurance borrowing, and (b) the Federal Unemployment Tax Act (“FUTA”) credit reduction. Include, for (a) and (b) separately the total amount of foregone payments to the federal government for FY 2011 and 2012.

2) Any statements or analysis detailing the financial impact of the previous suspension of interest payments on state unemployment insurance debt and the FUTA credit reduction from the date of enactment of the American Recovery and Reinvestment Act of 2009 to the present.

3) Any statements or analysis detailing past or current consideration given to combining suspension of interest payments and debt repayment with a demonstration by the accepting states of specific conditions which would prevent similar loan modifications in the future.

4) Any statements or analysis detailing the financial impact of forgiveness of principal on state unemployment insurance debt.

5) Information as to whether the administration believes it has executive or statutory authority to unilaterally:

a) Suspend interest payments on state unemployment insurance debt;
b) Suspend principal payments on state unemployment insurance debt;
c) Forgive interest payments on state unemployment insurance debt; and/or
d) Forgive principal payments on state unemployment insurance debt.

6) Information as to whether the administration believes it has executive or statutory authority to unilaterally bailout state or municipal governments, or any intention to do so.

Thank you for your prompt attention to this matter. I would appreciate your working with my staff to discuss these issues before March 11, 2011.

Sincerely,

Orrin G. Hatch
Ranking Member

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