Employers hit with unemployment fund debt

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by Eric Olson|ret||ret||tab|

SBJ Reporter|ret||ret||tab|

eolson@sbj.net|ret||ret||tab|

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A letter warning Missouri employers they will pay the state an extra assessment to keep the bankrupt unemployment fund afloat has politicians and an employer-advocacy group up in arms.|ret||ret||tab|

Consecutive years of state borrowing from the federal government to pay unemployment benefits in Missouri will cost businesses at least $14 million this year, employers learned from a Missouri Department of Labor and Industrial Relations letter mailed in March. The letter did not specify how much each company would be assessed.|ret||ret||tab|

Borrowed federal monies, expected to total $327.2 million this year, according to Division of Employment Security projections, fund the state's bankrupt unemployment insurance trust fund. The fund became insolvent in March 2003.|ret||ret||tab|

The first round of interest assessments this year, appearing on June's second-quarter contribution and wage report, bills employers approximately $7 per employee who makes more than $7,500, according to Tammy Cavender, Department of Labor spokesperson. The assessment covers $14 million of accrued interest on $296 million of borrowed federal monies thus far in 2004. The state pays 5.98 percent interest for advanced federal funds.|ret||ret||tab|

It's unsettling to some companies.|ret||ret||tab|

"Business is tough, we don't need any additional expenses," said Don Golick, Paul Mueller Company vice president and CFO. Simple math says Paul Mueller would be assessed nearly $6,000, considering its work force of 837.|ret||ret||tab|

While Department of Labor officials say the nearly 130,000 mailings were intended to give businesses time to budget the extra expense, its plan may have backfired. The letters, signed by department Director Catherine B. Leapheart, have started a game of finger-pointing at Missouri's Capitol, as a handful of legislators and employer representatives claim the letter has political overtones too strong for a state agency.|ret||ret||tab|

"This letter speculates about pending legislation, and the law specifically says that fund is to only be used to administer the current law," said Jim Kistler, vice president of Associated Industries of Missouri, who is upset by the letter. |ret||ret||tab|

"What they have done is they've used it as a means to get employers to lobby legislators."|ret||ret||tab|

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Attorney general investigation|ret||ret||tab|

Opinions such as Kistler's have inspired another letter: one to Attorney General Jay Nixon's office requesting an investigation of the Department of Labor letters. The letter to the attorney general argues the letters constitute an expenditure of public money for political purposes. |ret||ret||tab|

Signed by Sen. John Loudon (R-West St. Louis County) and Reps. Steve Hunter (R-Joplin), Todd Smith (R-Sedalia) and Kevin Wilson (R-Neosho), the investigation request was mailed April 8, the same day the legislators announced their displeasure with the state letters at a press conference in Jefferson City. |ret||ret||tab|

Scott Holste, spokesman for the Attorney General's Office, said the letter had been received and was under review.|ret||ret||tab|

The letters to employers cost the Department of Labor $47,000 in postage, supplies and staff time, according to department documents Kistler retrieved through a Sunshine Law request.|ret||ret||tab|

Loudon and Smith sponsor unemployment fund reform bills that tout bonding as the main fix. |ret||ret||tab|

In the letters, the Department of Labor said it could not support issuing bonds, claiming bonding would threaten the state's AAA bond rating and would not provide a long-term fix. |ret||ret||tab|

State agencies typically do not comment on pending legislation.|ret||ret||tab|

"However, it is something unique regarding the bonding because the department did feel that was an important enough issue," said Tammy Cavender, spokesperson for the Department of Labor, who admitted the letter's statement contradicts traditional policy. |ret||ret||tab|

"In our viewpoint, (bonding) doesn't fix the problem. That's why we made the statement. If reform is going to be made now, we want to make sure it is reform that will fix the fund in the long term."|ret||ret||tab|

Kistler said there are other motives behind the department's stance against bonds, chiefly Gov. Bob Holden's political platform.|ret||ret||tab|

"The governor has proposed using bonds for life sciences and also issuing bonds in his Jobs Now proposal," Kistler said, adding that additional state bonding would make it more difficult for the governor to sell his political platform.|ret||ret||tab|

Still, Department of Labor officials stand by their letter.|ret||ret||tab|

"The department certainly disagrees that the letter was political. It was an informational letter that went out," said Cavender. |ret||ret||tab|

"The department felt it had an obligation to inform Missouri employers that they were going to have an assessment due come June and it was going to be a substantial amount of money, more so than they've ever paid in the past."|ret||ret||tab|

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Fund history|ret||ret||tab|

This is the third bankruptcy of Missouri's unemployment fund. Other insolvencies occurred during recessions in 1983 and 1992. Cavender said 1983 is the only year records show letters were mailed to employers. In 1992, the state borrowed $81.5 million to cover unemployment benefits that accrued $3.4 million in interest. Assessments last year billed 90 percent of employers less than $5 total, which Cavender said was not enough to justify letters.|ret||ret||tab|

This year could produce a sizable assessment, though, depending on employer work forces, Cavender said.|ret||ret||tab|

Repayment requires a special assessment because the Social Security Act prohibits interest due on federal loans from being paid out of regular employer contributions to the unemployment insurance trust fund. |ret||ret||tab|

The amount of each employer's share is based on the employer's taxable payroll in 2003, according to the letter.|ret||ret||tab|

Both sides agree reforms must be made, and there are several bills in discussion to do so. If no changes occur, the fund is projected to be insolvent until 2008, according to Department of Labor projections.|ret||ret||tab|

A report by Missouri Auditor Claire McCaskill indicates the state's unemployment fund is insolvent because of low unemployment tax rates; no requirement that each employer contribute to the fund; a low taxable wage base; and increased benefit payments with no rise in revenue.|ret||ret||tab|

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