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.

Bill reining in unemployment fraud heard in the Missouri House

The House Workforce Development and Workplace Safety Committee brought Missouri one step closer to stamping out fraud in the unemployment system during a public hearing on Senate Bill 510, sponsored by Sen. Will Kraus (R-Lee’s Summit.) For several years, Missouri has worked to repay millions of dollars borrowed from the federal government to cover unemployment insurance claims, when the unemployment insurance fund became insolvent. Blocking fraud would help bring solvency back to the fund.

The Missouri Senate passed Senate Bill 510 in March, sending it to the House committee. The proposed legislation would keep employees who are fired for workplace infractions such as stealing and doing drugs from receiving unemployment insurance benefits. Sen. Will Kraus sponsored a similar bill, Senate Bill 28, which was vetoed by Gov. Jay Nixon during the 2013 Legislative Session.

“We need this bill because people are getting benefits when they have done things like stealing, and that’s not right.” Sen. Kraus testified.

Many states were on the indebted list following the recession, when state unemployment funds were unable to keep up with the increased number of claims. Most have taken steps to reduce or eliminate outstanding debt. Missouri is one of 13 states that remain on the indebted list. Missouri currently owes $270 million to the federal government. In addition to penalties, interest on the debt grows at a rate of approximately $12 million a year.

“The Missouri Chamber has worked with Sen. Kraus for the last three years to reform the unemployment system, and this bill is a great start,” Tracy King, vice president of governmental affairs for the Missouri Chamber, testified. “In reviewing cases, I’ve found many people were given benefits for egregious behavior, and those that were denied could appeal and then were given a positive appeal. Employers are paying into this fund, and we need to put a stop to the abuses that are draining the fund.”

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

NEWS RELEASE – Reining in fraud would help make Missouri’s unemployment trust fund solvent

 For several years, Missouri’s unemployment insurance trust fund has been working to repay millions of dollars borrowed from the federal government to cover unemployment insurance claims.  Legislation given final approval by the Missouri Senate on Thursday could help rein in some of the debt.

The Missouri Senate passed Senate Bill 510, legislation that would keep employees who are fired for infractions such as stealing and doing drugs in the workplace from receiving unemployment insurance benefits.  Sen. Will Kraus is the sponsor of SB 510.  He sponsored a similar bill, Senate Bill 28, which was vetoed by Gov. Jay Nixon in the 2013 Legislative Session.

Many states were on the indebted list following the recession, when state unemployment funds were unable to keep up with the increased number of claims.  Most have taken steps to reduce or eliminate outstanding debt.  Missouri is one of 13 states that remain on the indebted list.  Missouri currently owes $270 million to the federal government.  In addition to penalties, interest on the debt grows at a rate of approximately $12 million a year.

“Employers fully fund the system through federal and state unemployment insurance fees.  That’s why employers have a right to demand that the system be protected from obvious fraud,” said Dan Mehan, Missouri Chamber President and CEO.

The Missouri Chamber is working to bring solvency back to Missouri’s unemployment insurance trust fund through several legislative proposals that are under consideration during the 2014 Legislative Session.  These options include bonding the outstanding debt to limit interest and penalties.   Another legislative proposal that is under review would tie the weeks of unemployment insurance eligibility to the unemployment rate.  Senate Bill 510 addresses the problem of fraud that employers say is a serious drain on the system.

“Why should we allow employers shoulder the debt of several hundreds of millions of dollars, now or in the future, when we have the power to implement common sense reforms like Senate Bill 510?” Mehan asked.

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.