Unemployment insurance reform

Reducing the tax liability of Missouri’s unemployment system is another measure that would provide broad-based relief to all Missouri employers.  Following the last recession, Missouri borrowed millions of dollars from the federal government to cover claims the state fund was unable to pay.  Missouri employers, who fund the state’s unemployment insurance system, were required to pay millions of dollars more in additional penalties and interest.  This summer, Missouri’s outstanding federal debt was finally repaid.  Missouri was one of the last states to pay off its debt.  Missouri is the only state that has had to borrow federal money during the last five recessions.

“Missouri employers bear the weight of this problem, because employers fully fund the system through federal and state UI taxes.  Employers have every right to demand a more cost-effective and stable system with greater measures of accountability to root out fraud,” Mehan said.

The Missouri Chamber will work to implement stricter standards for workers who can access the system.  The Missouri Chamber also will push for legislation to tie the unemployment rate to number of weeks unemployment benefits will be paid.  These moves could help provide long-term stability for the fund in the future so that the system can serve the workers it was designed to protect – people unemployed by no fault of their own.

Several states have taken common-sense steps toward stemming the tide of unemployment insurance debt.  In the last two legislative sessions, the Missouri Chamber has successfully advocated passage by the General Assembly of similar measures.  Some of these provisions were vetoed by Gov. Nixon.

Nixon Veto Will Lead to Future Unemployment Tax Hikes – By Rep. Jay Barnes

Re-printed with permission from Representative Jay Barnes

Those who ignore the past are destined to repeat it. Sen. Kehoe had that adage in mind when he sponsored legislation this year to reform Missouri’s unemployment benefits system.   Unemployment benefits are a forced short-term insurance plan administered by the government to guard against the temporary setbacks of workers who lose their job through no fault of their own. To administer unemployment benefits, government takes money from working Missouri employees by taxing Missouri employers to give short-term payments to eligible Missouri workers.   Unemployment benefits are different from typical federally administered social welfare programs because they are funded almost entirely by the state. When the economy is humming, the UI Trust Fund collects sufficient taxes to pay ongoing claims. But when the economy slows, Missouri’s UI Trust Fund has a history of falling behind. When that happens, Missouri goes hat-in-hand to the federal government for a loan. In the last recession, Missouri joined 35 other states in the beggar’s line. Ultimately, Missouri borrowed more than $700 million.

Representative Jay Barnes

Representative Jay Barnes

Consequently, Missouri employers were hit with an additional tax of approximately $84 per employee.   Senate Bill 673, which I carried in the House for Sen. Kehoe, would help Missouri avoid this spend-borrow-tax trap in three ways.    First, it would require the state board, which oversees the UI Trust Fund, to consider bonding as an alternative to borrowing from the federal government. In the last borrowing cycle, the board refused to even consider the idea. However, in future scenarios, it may be cheaper for Missouri employers to bond debt over a longer period of time rather than face steep tax increases in the short-term and in the middle of a recession. In this regard, SB 673 merely ensures that the board considers all options.

Second, it would increase the amount the UI Trust Fund would keep in reserve from $750 million to $870 million before reducing the unemployment tax. The rationale, naturally, is that the larger the cushion, the less likely the state will be asking the feds for a loan.

Third, SB 673 would tie the length of unemployment benefits to the unemployment rate. Under current law, recipients are able to receive benefits for 20 weeks. Under SB 673, eligibility would be shortened as Missouri’s economy improved. If the unemployment rate fell below 6 percent, benefits would only be available for 13 weeks. This would reduce payouts from the UI Trust Fund and make future borrowing less likely.

Unfortunately, Gov. Nixon vetoed SB 673 this week. In his veto message, Nixon argued that the bill was no longer necessary because the UI Trust Fund just recently (and finally) repaid the loan it received from the feds in the last recession. In this Gov. Nixon is like a homeowner who rebuilds in the same flood plain without a levee or any other protective measure.

“The water has receded,” Gov. Nixon proclaims, “We don’t need a levee!”   Gov. Nixon next argued that reducing the duration of unemployment benefits in good times would “be damaging to our economy.” That statement relies on the same big-government multiplier-effect philosophy that justified Gov. Nixon’s attempted $2.4 billion giveaway to Boeing. The theory follows: when government spends “X,” it stimulates the economy and it receives “X times Y” in economic benefits.   For some categories of spending, this may actually work. Take, for example, police, fire, roads, and education. It’s generally agreed that some level of government spending on these items returns multiples of economic benefits because they serve as the infrastructure for a functioning economy. But unemployment benefits are different – they are instead a straight wealth transfer from people who are currently working to people who are not.   In today’s economy where decisions on Wall Street can cause pink slips on Main Street, unemployment insurance is a vital cushion for those Missourians who lose their job through no fault of their own. SB 673 recognizes we have finite resources and, accordingly, prescribes that benefits should move with the economy.   As with every other social welfare program, economic research has shown that incentives matter. According to Alan Krueger, President Obama’s top economic adviser from 2011 to 2013, extended unemployment benefits correlate with longer spells of unemployment. Not surprisingly, the job-finding rate of Americans on unemployment jumps just before benefits expire – and, in states with more liberal unemployment benefits, recipients don’t search for a job as intensely as those in states with more conservative benefits. Other studies from Fed economists have found that extensions of unemployment benefits increased the unemployment rate in the last recession, particularly among highly-educated workers who become “more relaxed and more patient in selecting jobs” as duration of benefits increases. Yet another study found that, contrary to Gov. Nixon’s argument, “UI benefits and contributions provide little impact of consequence upon general economic activity.”

In addition, money to fund unemployment insurance isn’t just plucked from a tree. Nor is it a matter of “Brinks Truck Economics” — the theory that a state benefits by asking the federal government to send a truckload of money to be distributed in that state as opposed to some other state. Unlike other federal social welfare programs, money for unemployment funds is generated by a tax on employers for every employee in our state.   When the economy turns south and Missouri has to borrow from the federal government, the UI tax is increased. Raising taxes in a recession is something even Gov. Nixon would have to admit is a bad idea. Yet, by vetoing SB 673, if history is our guide, Gov. Nixon has nearly guaranteed that unemployment taxes will be raised in a future economic downturn.   I, of course, believe the legislature should override this veto, but it’s unclear at this point whether there will be enough votes. The bill passed with a veto proof majority in the Senate, but had only 101 votes in the House. I believe six additional votes will be available in veto session, but that’s two shy of an override. As we get closer to September, we’ll know more.

House Committee gives approval to legislation to protect Missouri’s Unemployment Trust Fund

The House Workforce Development and Workplace Safety Committee voted do pass Senate Bill 673 on April 14, legislation that makes changes to Missouri’s unemployment insurance system to ensure solvency of this important safety net for unemployed workers. The bill, sponsored by Sen. Mike Kehoe (R-Jefferson City), would tie the number of weeks jobless Missourians can receive unemployment benefits to the unemployment insurance rate.

Following the recession, Missouri’s unemployment insurance system became insolvent and had to borrow money from the federal government to cover claims. Missouri has borrowed more than $1 billion since then to continue paying unemployment benefits. Employers have paid millions in interest alone on the borrowed funds.

Both Georgia and Florida have passed legislation that ties unemployment benefit weeks to the unemployment rate.

Under Senate Bill 673, unemployed Missourians would be eligible for:

  • 20 weeks of benefits if the Missouri average unemployment rate is nine percent or higher;
  • 19 weeks of benefits if the Missouri average unemployment rate is between 8.5 percent and 9 percent;
  • 18 weeks of benefits if the Missouri average unemployment rate is 8 percent up to and including 8.5 percent;
  • 17 weeks if the Missouri average unemployment rate is between 7 .5 percent and 8 percent;
  • 16 weeks of benefits if the Missouri average unemployment rate is 7 percent up to and including 7.5 percent;
  • 15 weeks of benefits if the Missouri average unemployment rate is between 6.5 percent and 7 percent;
  • 14 weeks of benefits if the Missouri average unemployment rate is 6 percent up to and including 6.5 percent;
  • 13 weeks of unemployment benefits if the Missouri average unemployment rate is below 6 percent

The Missouri Chamber is the lead advocate of this legislation and has testified multiple times on its behalf. The bill now moves to the House floor for further debate.

For more information on unemployment insurance legislation, contact Tracy King, Missouri Chamber vice president of governmental affairs, at tking@mochamber.com, or by phone at 573-634-3511.

Federal budget proposal taps employers for $74.1 billion unemployment tax increase

In his proposed budget for fiscal year 2015, Pres. Barack Obama looks to employers for an additional $74.1 billion over 10 years for the unemployment insurance system.

Pres. Obama’s proposal would bring back the .2 percent surtax and make it permanent. In addition, it would make changes to the FUTA wage base, create an index allowing the wage base to grow and change the federal unemployment insurance tax.

The changes are contained in the administrations’ budget (http://www.treasury.gov/resource-center/tax-policy/Documents/General-Explanations-FY2015.pdf).

As the nation’s economy attempts to recover from the recession, the Missouri Chamber of Commerce and Industry opposes efforts to increase taxes on employers.

The Missouri Chamber will continue to watch this proposal as Congress begins its work on the 2015 budget.

Likewise, the chamber is continuing to engage in the discussion to reform Missouri’s unemployment system. Senate Bill 673, sponsored by Sen. Mike Kehoe, R- Jefferson City, would tie the number of weeks jobless Missourians can receive unemployment benefits to the unemployment insurance rate (https://mochamber.wordpress.com/tag/unemployment-benefits/).

In February, Sen. Kehoe’s bill as well as Senate Bill 510, sponsored by Sen. Will Kraus, R-Lee’s Summit, was passed out of the Senate Committee on Governmental Accountability and Fiscal Oversight. Both pieces of legislation await debate on the Senate floor. The Missouri Chamber was vital in crafting both pieces of legislation and has been the lead proponent of unemployment insurance reform.

For more information on unemployment insurance, contact Tracy King, Missouri Chamber vice president of governmental affairs, at tking@mochamber.com, or by phone at 573-634-3511.

Missouri Senate hears Unemployment Reform bill

This week Sen. Mike Kehoe, R-Jefferson City, presented Senate Bill 673 to the Senate Committee on Governmental Accountability and Fiscal Oversight.   This is legislation that would tie the number of weeks jobless Missourians can receive unemployment benefits to the unemployment insurance rate.

Following the recession, Missouri’s unemployment insurance system became insolvent and had to borrow money from the federal government to cover claims.  Missouri has borrowed more than $1 billion since then to continue paying unemployment benefits.

“We’ve been before the general assembly several times ringing the alarm bell about this deficit,” Tracy King, vice president of governmental affairs for the Missouri Chamber, testified. “Last year employers paid $92 million and this year they are paying $140 million (in additional fees). This is a significant burden on all employers, but especially for small employers who might not have budgeted for the impact of this debt.”

Prior to the recession, the average number of benefit weeks was 15 weeks.  This bill aims to tie the amount of weeks a Missourian can receive benefits to the unemployment rate.

Under Senate Bill 673, unemployed Missourians would be eligible for:

  • 20 weeks of benefits if the Missouri average unemployment rate is nine percent or higher
  • 19 weeks of benefits if the Missouri average unemployment rate is between 8.5 percent and 9 percent;
  • 18 weeks of benefits if the Missouri average unemployment rate is 8 percent up to and including 8.5 percent;
  • 17 weeks if the Missouri average unemployment rate is between 7 .5 percent and 8 percent;
  • 16 weeks of benefits if the Missouri average unemployment rate is 7 percent up to and including 7.5 percent;
  • 15 weeks of benefits if the Missouri average unemployment rate is between 6.5 percent and 7 percent;
  • 14 weeks of benefits if the Missouri average unemployment rate is 6 percent up to and including 6.5 percent; and
  • 13 weeks of unemployment benefits if the Missouri average unemployment rate is below 6.5 percent

This bill also proposes a bonding plan to pay back the debt.  This plan would end the graduated loss of FUTA tax credits that employers have shouldered since the fund began borrowing money from the federal government.  Employers started paying $21 per employee in additional fees in 2011 and that amount has risen by $21 each year to a total of $63. Under the bill, the payment would stay static and the balance of the debt would be bonded.

“The Missouri Chamber is emphasizing the need to address our unemployment insurance system on multiple levels.  It is critical that we provide long-term stability for the fund in the future so that the system can serve the workers it was designed to protect – people unemployed by no fault of their own,” said King.

Both Georgia and Florida have passed legislation that ties unemployment benefit weeks to the unemployment rate.

For more information, please contact Tracy King at tking@mochamber.com or by phone at 573-634-3511.

Attempt to extend unemployment insurance benefits fails in Congress

The latest effort by U.S. Senate Democrats to extend emergency unemployment benefits failed on a procedural vote again on Thursday by a vote of 58 to 40.  This week in Congress, Senate Democrats made a move to pass a short-term extension of unemployment insurance benefits by forcing a cloture vote. To survive cloture and move to consider the legislation requires 60 votes.  Democrats were joined by Republicans Sen. Kelly Ayotte of New Hampshire, Sen. Susan Collins of Maine, Sen. Lisa Murkowski of Alaska and Sen. Dean Heller of Nevada.

The latest proposal included provisions to pay for the $6.4 billion cost of the extension with a pension smoothing amendment, which would reduce required pension contributions by employers.  It included an earlier proposal from Sen. Tom Coburn of Oklahoma that would have prohibited payment of unemployment compensation to individuals with adjusted gross incomes of $1 million or more the year prior to applying for unemployment compensation.

“It is not likely at this point that an extension proposal will move on its own through the Senate, and less likely that it would be taken up in the House,” said Douglas J. Holmes, president of UWC – Strategic Services on Unemployment & Workers’ Compensation.  “However, there is considerable concern about the number of long term unemployed individuals and steps that could be taken to provide training, job search assistance and support. A federal extended unemployment compensation program could still be proposed in conjunction with other legislation that is being considered in 2014.”

The Missouri Chamber is monitoring this federal legislation.  For more information on unemployment insurance, contact Tracy King, Missouri Chamber vice president of governmental affairs at tking@mochambe.com, or by phone at 73-634-3511.

Employer liability for the Second Injury Fund is growing at an alarming rate

More than 100 injured workers are waiting for benefit payments from Missouri’s Second Injury Fund that have been awarded to them under current law, with no promise of when their benefits will be paid.  More than 30,000 workers are waiting to have their cases heard through SIF, with no idea when their cases will be resolved.  That’s because Missouri’s Second Injury Fund – designed to protect employees who are reinjured on the job – is broke and there is not enough money to pay all benefits.

Revenue flowing into the fund has decreased drastically due to high unemployment and the decline in workers’ compensation premiums, which establishes the base for SIF funding.  In 2007, SIF revenue from the 3-percent surcharge totaled $70 million.  In 2011, SIF revenue from the 3 percent surcharge totaled $40.4 million.  Meanwhile, current expenses are approximately $55 million annually.  As a result, over the course of several years, the fund has been sliding toward insolvency.  In 2009, Attorney General Chris Koster suspended all settlement offers, which has resulted in a backlog of 30,000 cases.

“Right now, Missouri is just sitting back while cases continue to mount and injured workers go without the benefits awarded them,” said Daniel P. Mehan, president and CEO of the Missouri Chamber of Commerce and Industry.  “It’s bad policy and in the end, Missouri employers are going to be holding the bill.  But in the meantime, we have injured workers that have been awarded benefits under the law and they are not getting paid.  No responsible employer wants to see their workers treated that way.”

Liability on Missouri employers, who are ultimately responsible for the fund by law, is growing at an alarming rate.  Two thousand claims were added to the list of pending cases since July, bringing that number to 30,000.  It will cost tens of millions of dollars to adjudicate these cases. The unpaid liability to permanent total disability awardees has grown from $4.9 million in July to $7.1 million as of Sept. 1.  What’s more, interest on that amount continues to accrue at 10 percent.

Because of inaction by the Missouri Legislature to fix the problems with Missouri’s SIF over the years, Missouri is now in a position where reform alone will not resolve the outstanding liability without additional revenue.  The Missouri Chamber has pleaded with lawmakers to address Missouri’s failing Second Injury Fund for several years.  Unable to reach legislative resolution, the issue now lies in the hands of the courts.  At least two lawsuits have been filed against the SIF, and more are expected.

Over the last decade, claims to the Second Injury Fund have expanded greatly – paying general claims against employers who do not carry workers’ compensation coverage and a broad range of pre-existing conditions.

“The Missouri Chamber strongly disagrees with this policy, but the way the law is written, it will continue to be interpreted in this way.  That is why the Missouri Chamber has been so adamant that lawmakers address this issue,” Mehan said.

Section 287.220.1 of the Missouri Revised Statutes states that “If any employee who has a preexisting permanent partial disability whether from compensable injury or otherwise … receives a subsequent compensable injury resulting in additional permanent partial disability … shall be paid out of a special fund known as the second injury fund.”

Legislation to address the fund was blocked in the final days of the 2011 Legislation Session.  Unfortunately, Missouri employers will have to wait until 2012 to take another run at making change.

For more information on SIF, please contact Richard Moore, assistant general counsel/director of regulatory affairs for the Missouri Chamber, at 573.634.3511 or rmoore@mochamber.com.