State's unemployment compensation fund founders

Spring is on its way, but the cold wind of recession continues to batter Missouri's economy.

As Missouri Auditor Claire0 McCaskill warned more than a year ago, the Missouri unemployment compensation trust fund will be insolvent by the end of March, forcing the Division of Employment Security to borrow from the federal government.

The state is expected to borrow between $20 million and $30 million from the U.S. Department of Labor for each of the next two months to pay unemployment benefits in March and April, according to Division of Employment Security Director Gracia Backer.

And that's just the beginning. Projections say the state will be forced to borrow about $126 million over the course of the year, resulting in about $1.8 million in interest charges. If no changes are made to the system, Backer said, the Division of Employment Security will be forced to borrow another $302 million plus interest of about $15 million to cover benefits in 2004.

The auditor's report, released in January 2002, indicated the state's unemployment compensation trust fund would be insolvent this year due to 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.

The fund was at $23 million as of March 7. Monthly unemployment benefit payments run about $45 million per month, and the state paid out about $550 million in benefits last year.

Who pays?

The repayment burden will fall directly on Missouri employers paying into the fund.

"The bottom line is that the employers are going to have to pay for this," Backer said. "This is the way the law reads: we are required to borrow money (when insolvent), we are required to continue the unemployment insurance program and ... this is the way it's paid back," Backer said.

Considering Missouri was No. 2 in percentage of jobs lost last year (39,900 nonfarm payroll jobs, equaling 1.5 percent), it is no surprise the fund is running dry. But business advocates, such as Associated Industries of Missouri Vice President Jim Kistler, feel "rampant" overpayments to the state's unemployed compound the financial difficulties.

By his count the state could save $70 million to $100 million if the law were changed to prohibit unemployment benefits to those who were fired from their jobs for misconduct.

Those savings would decrease costs for business owners, he said.

Legislative reform

Other business advocates, including the Missouri Chamber of Commerce and the National Federation of Independent Business/Missouri, are pushing for reform of the state unemployment compensation laws.

Kistler, who represents Missouri businesses at the legislative level, points out that the state law says unemployment benefits are intended for persons unemployed through no fault of their own.

"If you're fired for stealing, if you're fired for using drugs, (or) if you're fired for never coming to work, how can that not be your fault? But yet, we're paying all of these people," he said.

Missouri Rep. Steve Hunter (R-Joplin) agrees. Hunter is cosponsor of the House Bill 475 proposing reform of the system.

"We feel like there is $70 million to $100 million in fraud (misconduct) and abuse that needs to be straightened out," Hunter said.

The legislation would:

declare use of illegal drugs in violation of an employer's policy to be misconduct;

deny unemployment benefits to persons discharged for misconduct;

deny payment for the bonus week if the claimant remains unemployed at least nine weeks;

deny payment of benefits if the claimant is receiving severance pay or elected official pay;

require the state to more closely monitor unemployment recipients to ensure they are not employed and are actively looking for work; and

prohibit the state agency from disclosing confidential tax data on businesses to anyone not working for the unemployment program.

These proposals are in the first draft of the bill which will be read at the Workforce Development and Worlplace Safety committee meeting this week. Hunter expects changes to occur. Two proposals he hopes are retained are a requirement that the Division of Employment Security cross-check unemployment compensation receipts against federal new hire databases to "make sure people aren't working and drawing (unemployment)," for example, in another state; and changing the definition of misconduct at work to include drug and alcohol use.

Although it was among the auditor's recommendations, Kistler considers raising employers' unemployment tax rates a last-resort solution: "What happens if you raise taxes, (businesses) have to let go employees, and then you have fewer employees that they are paying taxes on. It becomes a negative cycle."

If a reform bill does not pass this session, the financial situations of the state's unemployment fund and the state's businesses will only worsen, Backer said.

"We will be borrowing all of next year, and the employer community is required by law to pay that back through a surcharge on their contribution wage reports even those that are zero rated."

Been there

This isn't the first time Missouri's unemployment fund has faced insolvency. The trust fund became insolvent in both the 1983 and 1992 recessions, according to the audit. In 1992, the state borrowed $81.5 million to cover unemployment benefits. Employers had to repay the loan plus $3.4 million in accrued interest.

"In the early '90s and the early '80s now in the early 2000s the system is just pushed to the brink," said Doug Kaylor, chief of the state's unemployment insurance programs. "We're not putting enough away through the good times (to) make it through these dips in the economy without borrowing."