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Insolvent Unemployment Insurance

ACCE Webmaster on Wednesday, December 3, 2008 at 1:05:00 am

A looming issue for many states is the solvency of unemployment insurance trust funds.  In Ohio, claims are running 40% above last year's levels and the state's trust fund is running an uncomfortably low balance. Missouri is looking at a ’09 unemployment fund deficit of just over $100 million. California is projecting a staggering $2.4 billion shortfall next year if no action is taken.

Those states are not alone.  According to the National Employment Law Project, 19 states had insolvent or nearly insolvent unemployment trust funds as of Sept 30, 2008. Their study finds that Michigan, New York, Ohio, Indiana and South Carolina are at risk of totally depleting their unemployment insurance trust funds before the end of this year.

What does this mean for business?  Perhaps higher taxes.

Gov. Schwarzenegger has called a special legislative session in California to address the budget deficit in the current fiscal year and consider an economic stimulus plan. Suring up the unemployment fund is a top priority and the Governor is calling for a reduction in unemployment benefits and a tax increase on business to help stave off insolvency.

Michigan, a state that has already borrowed substantially from the federal government to maintain unemployment insurance, will implement a solvency tax starting in January.  The tax will apply to all negative balance employers at a cost of up to $67.50 per employee per year. If the state hasn't paid back its federal loans in 2 years, all employers may see their unemployment tax rate increase to approximately $22 per employee per quarter.  According to the Michigan Chamber's Wendy Block, "The only way around tax increases is to pass and implement cost-saving reforms like a waiting week, tightened qualification requirements, and better overpayment collection. Download Unemployment Insurance Tax - Michigan 08 to read a detailed announcement from the Michigan Chamber.

While not in the clear regarding unemployment solvency, Wisconsin has recently passed a reform bill that should help. 2007's Act 59 - Unemployment Insurance Reforms was signed into lay by Gov. Doyle this spring. The bill increases the amount of an employee's wages subject to the payroll tax, starting in January 2009, from $10,500 to $12,000— the first increase in since 1986. That wage base will increase to $13,000 in 2011 and $14,000 in 2013.   The bill also increases the amount of time that claimants must have worked in order to qualify for unemployment insurance benefits, and freezes benefit levels through 2009.

Is your state facing an unemployment solvency crisis?  Is there a potential solution?  Please leave a comment and share your thoughts.

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