Study: Missouri running low on unemployment funding

Jared Walczak: Missouri ranks 27th in weeks of unemployment benefits it can cover.

Mardy Leathers: State is fielding hundreds of unemployment claim calls daily.

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A new study from a tax policy nonprofit projects the Show-Me State has around three months of unemployment benefits in its trust fund.

According to an April 30 analysis from Washington, D.C.-based Tax Foundation, Missouri ranked 27th nationally by the number of weeks of unemployment benefits a state’s trust fund can cover. Missouri’s fund is sitting at 11 weeks, based on its current solvency levels and unemployment claims as of April 25.

As the coronavirus pandemic spread, the national economy has toppled, leading to widespread layoffs and rapidly rising unemployment claims. In Missouri, more than 453,000 unemployment claims were filed over a six-week period ending April 25.

Missouri officials disagree the state’s trust fund balance is threatened.

Missouri Department of Labor and Industrial Relations spokeswoman Delores Rose said via email the state’s trust fund balance is in excess of $1 billion – the largest in state history.

However, a state tax policy director at the Tax Foundation said Missouri is among 21 states sitting below what the U.S. Department of Labor recommends to be the minimum adequate solvency level. States at Level 1 could afford to pay out a year’s worth of claims based on the average payouts of the past 20 years.

But these are different times, said Jared Walczak at the Tax Foundation.

“A level of 1 doesn’t get you anywhere close to giving you the ability to pay out a year’s worth of claims right now,” he said.

Fund condition
Missouri’s trust fund sits at $1.02 billion as of March 31, the most recent data available. Rose said the fund total is published monthly.

“As its stewards, the Division of Employment Security continuously monitors its stability and activity,” she said via email. “We do not provide projections regarding future unknown events. If insolvency becomes an issue, then the DES will take appropriate action provided by law.”

According to the Labor Department, Missouri’s trust fund last went insolvent in February 2009, during the Great Recession. At the time, the state unemployment rate rose to 8.1%.

Walczak said borrowing money from the federal government is a frequent option when a state’s jobless fund goes insolvent.

States typically take out loans from the federal unemployment insurance trust fund, which must be paid back with interest, he said. Missouri received federal loans in 2009, repaying the debt in 2014, according to Springfield Business Journal archives.

However, this year, part of the $2.2 trillion Coronavirus Aid, Relief and Economic Security Act allows states to avoid interest on unemployment loans.

“Under the federal CARES Act, all states would have interest waived for calendar year 2020, regardless of the condition their fund was in when they entered this,” he said. “As of 2021, they would all start paying interest.”

Federal loans issued this year wouldn’t have to be repaid until November 2022. However, Walczak said the loans could lead to higher taxes for businesses if states don’t pay back the loans by then.

Currently, Walczak said Missouri’s unemployment insurance trust fund sits much better than California, New York, Ohio and Texas. Those state funds are projected to run out of money in early May, according to the study.

“It’s an issue that was easy for states to ignore as long as we were in an extended period of economic growth where layoffs were limited. They certainly had a capacity to cover them during a normal year,” Walczak said. “While it was ignored, it also should have been obvious that these states knew they were not anywhere near the federal government’s recommended adequate solvency levels.”

Rate watch
While Missouri’s unemployment claim totals have been hefty since mid-March, there’s been a recent decline. The initial claims for the week ending April 18 were 59,271 – a 42% drop from the prior week.

Still, Missouri Office of Workforce Development Director Mardy Leathers said the Department of Labor has been flooded with hundreds of phone calls daily to help residents access the unemployment insurance benefits system.

“It’s a system that was designed to take 40 calls an hour that’s now taking 200 calls an hour,” he said in an April 23 livestream hosted by the Missouri Job Center. “It can be frustrating as you’re trying to get through and get access.”

Missouri’s unemployment rate in March increased to 4.5% from 3.7% in February, according to the U.S. Bureau of Labor Statistics. The Springfield metropolitan statistical area’s jobless rate in March was 3.9%, up from 3.2% in February.

Nationally, unemployment insurance filings hit 3.84 million for the week ending April 25, bringing jobless claims to roughly 30 million in the past six weeks.

Economic forecasting firm Oxford Economics projects nationwide job losses of 24 million in April, with the unemployment rate expected to soar to 14%.

Sally Payne, Springfield’s Workforce Development interim director, said Missouri Job Center staff members continue to aid jobseekers remotely, while awaiting guidance from city and county officials on when its Springfield and Branson offices can reopen.

As state and city stay-at-home order restrictions expire or loosen, more businesses will reopen. As a result, some laid off employees will get called back to work, Payne said. Unemployment insurance eligibility is impacted by employee decisions, she added.

“If you have a call back and you choose not to go back, then that makes you no longer eligible for UI,” she said. “If you quit your job, that makes you not eligible for unemployment.”

That would mean missing out on a $600 weekly federal supplement, which is part of the coronavirus aid package passed in late March. Payments are set to end by late July. Missouri’s maximum weekly benefit amount is $320, with benefits paid out for no longer than 20 weeks.

Walczak said it’s too early to tell what action Missouri and other states might take if they have to borrow money from a federal fund to pay benefits. Raising employer unemployment taxes is a possibility.

“After two years of indebtedness to the federal fund, businesses in those states would pay higher federal unemployment insurance rates because the unemployment compensation insurance system is a joint federal and state system,” he said. “In normal times, a federal tax is very low because there’s a credit against it. As long as your state doesn’t have outstanding debt, most of its burden is eliminated.”

However, Missouri is not free from burden. The state’s outstanding debt was $17.9 billion for fiscal 2018, according to market research firm Statista.