The state's unemployment trust fund is virtually out of money for the fourth time, and the result could be a bigger bill for businesses.
Penmac Personnel Services owner Patti Penny knows the pain of an insolvent state unemployment fund. Her company, like most others in the state, will end up paying more to replenish the fund, but the impact is especially painful for Penny's company.
"We are the employer of record for every employee that we have working at another business. We're responsible for all of their employment claims," said Penny, who also serves on the state's 11-member unemployment council. "It's a huge impact to us - but then again, it will be a huge impact to everybody."
The reason: The state plans to borrow money from the federal unemployment system to keep the fund solvent, and the state faces penalties if the money is not repaid on time.
The Missouri Department of Labor and Industrial Relations said the state fund balance was approximately $9.2 million as of Feb. 19. Spokeswoman Wanda Seeney said the department already has requested authorization to borrow $260 million under the Federal Unemployment Tax Act to continue making monthly payments to the state's 109,000 qualified unemployed.
The state has requested $70 million for February, $120 million for March and $70 million for April.
Seeney said the state doesn't anticipate having to borrow more immediately because the fund receives a large influx of funds in the first quarter from employers making annual payments.
The drain
Seeney said higher unemployment levels due to the recession have drained the fund.
"We've had more people applying for unemployment benefits, which is true across the nation, so we have more people drawing from the fund," Seeney said. "But even if the fund goes insolvent, the fact that we can borrow makes sure there will be no delay in Missourians receiving payments."
According to U.S. Bureau of Labor statistics, there were 219,700 people on the Show-Me State's unemployment line as of December, up 38 percent compared to a year earlier. The fund balance as of Dec. 31 was $114 million, according to DOLIR. More than 85,000 claims were filed in December.
But the fund has operated on the razor's edge for years.
Chuck Yarbrough, vice-chairman of the unemployment council, said Missouri has had to borrow money for its unemployment fund four times since 1983, making it the only state that has had to borrow in each of the last four recessions.
Any increase in business payments into the state fund, meanwhile, would have to be approved by the state legislature.
The council has proposed legislation that would increase the base amounts that businesses pay into the fund per employee by more than 30 percent, which would help prevent the state from borrowing money in the future.
"The business community has had the philosophy of keeping a low trust fund and replenishing it after it gets spent, hoping there's a quick recovery," said Yarbrough, who also is vice president of human resources for Tracker Marine in Springfield. "It's counter-cyclical - you're supposed to pay taxes during good times so that you have the money in the trust fund when bad things happen."
Without that legislation, the council estimates the state would have to borrow somewhere between $500 million and $700 million in the next two years to cover its unemployment benefit payments.
The program could feel additional pressure from federal stimulus proposals, which could lengthen the amount of time workers can draw benefits - a possibility that infuriates Penny.
"(Proponents) talk about it being free money, but it's not free money," she said. "This would make unemployment an entitlement program on the backs of business. It's sad, and it's going to put some (businesses) out."
Paying the piper
All states get a grace period to pay back their federal loans without accruing interest; Seeney said Missouri normally would have until September to repay the $260 million requested. But under the recently passed federal stimulus package, the state would not be charged interest until Dec. 31, 2010.
But prompt repayment is not likely given the slow nature of the expected economic recovery. As an example, in 2003 and 2004, when the state borrowed more than $1 billion to cover a fund shortfall, it took until May 2007 to repay the federal government.
Beyond interest penalties - set at 5.98 percent - there is another hit from late payments: lost FUTA tax credits.
Employers that pay into the state unemployment trust fund receive credits toward their FUTA tax payments. But for each year federal loans are on the books, businesses lose a portion of those credits.
Penny said the council has estimated that the first FUTA tax credit hit would cost each Missouri business between $120,000 and $240,000 in the first year, depending on the number of employees.
"It's a terrible time to ask (employers) to pay more into the fund," said Rita Needham, executive director of the Southwest Area Manufacturers Association, whose group has suggested government bonds as an alternative to borrowing federal dollars.
SAMA, along with other employer groups across the state, brought in bond experts to present the option to the state council.
Yarbrough, however, noted that state law prevents the unemployment fund from having more than $500 million in nonfederal debt.
Seeney said the department is evaluating all funding options, though any type of bonding would be executed by the state's Board of Unemployment Fund Financing, which has authority to issue bonds and enter into commercial lines of credit.[[In-content Ad]]
