As States Cut Unemployment Benefits, Higher Business Taxes Loom

 

The phones have been ringing a lot lately at Florida's unemployment compensation headquarters in Tallahassee. It's not because more Floridians are out of work. In fact, the state's 10.6 percent unemployment figure is at its lowest in two years.

The reason so many people are calling is because they're struggling to understand how a sweeping state law passed this year affects their unemployment benefits. The law made Florida the only state in the country that links the amount of time people can collect unemployment insurance to the state's unemployment rate. As the jobless rate falls, so does the duration of unemployment benefits. Ultimately, out-of-work Floridians could receive just 12 weeks of benefits — less than half the 26 weeks of benefits offered by most other states. 

Florida made the change so that it could begin paying down $1.7 billion worth of loans from the federal government to keep checks going to the jobless. There are primarily two ways to pay off that debt: make benefits less generous or raise payroll taxes on employers. Florida is doing both. The new rules around benefits are expected to save the state's unemployment trust fund more than $100 million per year.

"We knew we had to make changes," says state Representative Doug Holder, who introduced the bill that became law. "Our unemployment insurance trust fund has been broke since 2009."

Florida isn't the only state making big changes in unemployment insurance this year. Nine other states have reduced either the amount of unemployment benefits or the length of time that the jobless can receive them. Several others have opted to raise taxes on businesses to shore up unemployment trust funds - although a number of states, like Florida, delayed or reduced those higher surcharges, fearing that a spike in business taxes now could forestall more hiring.

The reason for such extraordinary measures is that come September 30, a record 30 states will have to start paying interest on the $37 billion they borrowed from the federal government after their employment trust funds dried up during the recession. Florida's interest alone is estimated at $62 million.

50 states, 50 different programs

The Great Recession and the weak recovery that followed it have tested the country's unemployment insurance system as never before. The program, run jointly by the federal government and the states, provides monthly benefits to workers who become unemployed through no fault of their own. States have wide latitude in determining who is eligible to receive benefits, as well as how long and how much a worker can collect.

Each state's system is different. Benefits are paid out by the state from a special fund. The fund gets its money from employers, who pay a state and federal payroll tax specifically for this program.

Until this year, states typically provided up to 26 weeks of benefits, the maximum allowed under federal law. But a new state law already in effect in Arkansas reduced that to 25 weeks, while Missouri and South Carolina set an even lower limit at 20 weeks. Starting next year, workers in Florida, Illinois, Indiana, Michigan, Pennsylvania, Rhode Island and Wisconsin will get less generous benefits or fewer weeks of them, according to a new report from the National Employment Law Project, an advocacy group that opposes reducing benefits.

Critics say now is not the time to cut benefits. The average unemployed American has been looking for work for 40 weeks . That's the longest duration since the federal government began collecting data in 1948.

"It's disconcerting that these lawmakers would expend so much energy making cuts to state unemployment insurance programs when more people are out of work for longer than any other period on record," says Christine Owens, NELP's executive director.

Adding to Owens' concern is that a temporary federal program that pays for as many as 99 weeks of additional benefits is set to expire at the end of this year. There was some speculation in Washington that the recent debt-ceiling deal might include an extension of those extra federal benefits. It didn't. President Obama says he wants an extension , but key Republicans have opposed the idea in the past. 

Florida tries something different

Florida's new approach is unique: It is the only state that will base unemployment benefits on a sliding scale. Florida's unemployed may get up to 23 weeks of aid if the state's unemployment rate is at least 10.5 percent, which it currently is. If joblessness falls to 5 percent, the unemployed get benefits for 12 weeks.

Karen Woodall, executive director of the Florida Center for Fiscal and Economic Policy, doesn't like the new system. She's especially concerned that the new law ignores the fact that the economy is doing worse in some parts of Florida than others. Dade County, for example, has a 13.9 percent jobless rate, compared with 7.4 percent in Okaloosa County in the Florida Panhandle. Woodall says the new rules will be unfair to workers in the hardest-hit areas who may run out of benefits before they can land scarce jobs.

Critics also say that the new law makes it too easy to deny benefits. Florida's own analysis estimates that more than 40 percent of new applicants could be disqualified under the law. For example, the state broadened the definition of " misconduct " — a common reason to deny benefits — to include chronic tardiness and behavior outside the workplace that is found to be "a conscious disregard of an employer's interests."

Supporters of the Florida law argue the changes are necessary to get the state unemployment system solvent: Florida expects to erase its debt to the federal government by 2013. Nancy Detert, the sponsor of the bill in the state Senate, also argues that the changes will allow the state to focus help on those who need it most. The "reforms provide relief to employers," Detert said in a statement , "by weeding out individuals taking undue advantage of the system."

Holder, the House sponsor, stresses that a big priority was to remake "the unemployment system into a reemployment system." Those receiving benefits must take an online skills assessment that plugs them into the state's job-matching system. They also must submit information online that shows they contacted at least five employers a week or have met with a representative at a local One-Stop Career Center .

The state expects to save $4.7 million a year by moving so many requirements online. Critics like Woodall fear this could be another way needy people may be disqualified for benefits — especially those without home computers.

Higher taxes in the offing

The changes on the benefits side didn't prevent Florida from having to raise payroll taxes on businesses. But they did reduce the amount of the increase. Without Florida's new law, businesses there would have seen the minimum payment per employee go from about $72 per year to $207. With the new law, the minimum payment next year will rise to $156.

Indiana , Georgia, Massachusetts and South Carolina were among other states that reduced or delayed higher business taxes that were scheduled to go into effect, according to the National Employment Law Project report.

On the flip side, some states are tacking on special assessments or surcharges that businesses will have to pay to help refill empty unemployment trust funds. In Arizona , employers will pay at least $42 more per employee during 2012.

Employers in Connecticut and New York will pay surcharges of up to $26 and $21 per employee respectively, according to a new report from Unemployment Services Trust , an organization that works with nonprofits to lower unemployment costs. Other states that increased the amount businesses pay toward unemployment include Colorado, Hawaii, Illinois and Rhode Island.

"This may not sound like a big expense to employers," says  Terry Jannsen, president of Jannsen Company, an accounting firm in Pewaukee, Wisconsin. "But the negative impact could be substantial for companies already feeling the pinch."

The huge debts states have racked up with the federal government mean that employers in many states should expect higher taxes in the future. That's because federal law has an automatic repayment provision for outstanding state loans. Starting next year, a federal credit that employers typically receive for paying into state trust funds goes away. The extra federal revenues will go to paying down the state loans. The loans, says a report from Ernest & Young and the Council on State Taxation, are "a unique, and fairly certain, source of business tax increases over the coming year."

 
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