Unemployment trust fund reform questioned

That’s what Associated Industries of Missouri is asking after Missouri’s House of Representatives passed an unemployment insurance reform bill May 14, the final day of session. House Bill 1268, designed to bring solvency to a bankrupt fund and sustain it, increases taxes on Missouri employers, while curbing fraudulent behaviors that led to a fund deficit of $142.9 million last year.

AIM officials say employers shouldn’t shoulder a tax burden when the system is at fault.

“I’m afraid we have imposed a lot of new costs on employers and not solved the problem,” said Jim Kistler, vice president of Associated Industries of Missouri.

Though the bill is not yet law, Gov. Bob Holden is expected to sign it into action after giving it his blessing at a press conference to close the session. Holden’s office received the bill May 28 and is reviewing it.

Based on the bill, employers would be taxed approximately 50 percent more on average next year. “We’ve talked to individual businesses where it’s going to go up anywhere from 70 (percent) to 100 percent next year,” Kistler said.

It gets worse in the long term, Kistler said. AIM calculations show Missouri employers would pay $270 million more over the next six years under the new law than they would if the system went unchanged.

Sticking businesses with higher taxes wasn’t the bill’s original intent, however, said the bill’s co-sponsor, Rep. Brad Roark (R-Springfield).

Roark said the Senate version taxed businesses at a higher rate than the original House version. That addendum turned Roark against the bill he co-sponsored.

“I did vote against it,” he said. “We’re blaming the businesses for the insolvency and the mismanagement of the fund, when in fact it was government, in my opinion, that mismanaged the fund.”

In addition, Roark said, the bill was hurried through in the 11th hour.

“The Senate version came back and we were running out of time. It was either vote up or down,” he said.

State of repair

The state has borrowed nearly $300 million in federal funds to sustain the unemployment fund that fell bankrupt in March 2003. In late June, employers will be assessed $14 million for interest on those advances. Employers will know the exact amount each owes, estimated to be an average of $7 per employee, on their second-quarter contribution and wage reports. Missouri’s Department of Labor and Industrial Relations plans to mail the second quarter reports by June 25, said Tammy Cavender, Department of Labor spokesperson. Assessments are due at the end of July.

Missouri’s Division of Employment Security projects federal advances will reach $327.2 million this year. Borrowing federal monies increases federal taxes paid by Missouri businesses and reduces Federal Unemployment Tax Act credits granted to businesses contributing to the state unemployment fund. According to Missouri Chamber of Commerce and Industry, employers would lose $63 million in FUTA credits next year without corrective legislation.

The bill before the governor authorizes bond issuances of up to $450 million as a means to fund unemployment benefits. It also raises the state’s taxable wage base to $10,000 in 2005; $11,000 in 2006 and 2007; and $12,000 for 2008 and thereafter. Employers are required by law to fund the unemployment system.

The Missouri Chamber of Commerce called the contribution increase “conservative.” The state chamber and AFL-CIO were major forces behind the bill.

“We can’t continue paying interest on borrowed funds because of an inability to reach consensus. This legislation recognizes that both sides must share the burden of bringing our fund to solvency and responsibly managing the system so that it can remain solvent into the future,” said Daniel Mehan, Missouri chamber president and CEO, in a press release.

Jim Kistler, vice president of Associated Industries of Missouri, said the bill does not do enough to address fund revenues.

“In our opinion, the bill that passed was too costly for employers,” Kistler said. “It’s going to put an additional strain on their ability to create new jobs, to hire new people, to reinvest in the workplace.”

According to a letter House Speaker Pro Tem Rod Jetton (R-Marble Hill) sent to Missouri businesses, employers paid more than $100 million in benefits last year to individuals fired for cause, and about $5 million in benefits for people fired for drug use.

An AIM study shows payment errors made by the state cost the unemployment program at least $45.5 million last year.

“I don’t think we should be penalizing businesses for that,” Roark said.

To address abuses in the system, the bill withholds benefits for individuals discharged for misconduct – including violation of company policy, drug or alcohol use and excessive absenteeism or tardiness – until the individual has earned wages insured under the unemployment law. It would also close a loophole that allows elected officials to receive unemployment benefits while drawing government pay. Greater efficiencies are projected to save the fund $50 million annually, according to the Missouri chamber.