MONTGOMERY - Governor Bob Riley said he will not recommend that legislators change state law in order for Alabama to receive a portion of the federal stimulus funds dealing with unemployment compensation coverage. The federal stimulus law requires states to change their laws to expand unemployment compensation coverage to those who don’t normally qualify, such as those who work part-time or who quit their job for a “compelling family reason.” This provision would result in a tax increase on all Alabama employers, and potentially their employees, when the federal stimulus dollars vanish.

Based on claims filed during 2008, the $66 million in the stimulus for unemployment compensation expansion could run out in about 4 years and from then on, Alabama would be required to raise taxes on all Alabama employers - and potentially employees - by $17 million per year in order to continue supporting this expansion of benefits.

If the economic downturn worsens, then the tax increase in Alabama could be even higher than projected at this time.

A statement from Governor Riley follows:

“We have a team of experts carefully going over the federal stimulus law line-by-line so we make sure Alabamians benefit from it as much as possible. But we’ve also uncovered a provision that I believe would harm our state’s recovery. It is a federal mandate that would force Alabama to pass a tax increase on jobs of $17 million a year. While the stimulus money will one day vanish, this tax increase would never go away. It would apply to all employers, including small businesses, and potentially even to employees when the federal stimulus funds run out in about four years.

“Increasing taxes is not my idea of stimulating the economy. In fact, this provision would raise taxes on jobs at a time when we need to create jobs.

“Congress has tucked this job-killing tax increase inside the stimulus and that’s something Alabama should not be forced by the federal government to accept. I’m not going to recommend to legislators that they change state law in order for Alabama to receive this portion of the federal stimulus.

“Several other governors, Republicans and Democrats, are voicing these same concerns about this part of the stimulus and it’s likely that several states will refuse to go along with this tax increase. Today in a meeting with the nation’s governors, President Obama acknowledged our concerns over this issue are ‘legitimate’ (http://www.usatoday.com/news/washington/2009-02-23-obama-governors_N.htm) so I’m hoping his administration will work with the states to change it.”