Georgia employers are almost certainly going to pay higher unemployment insurance taxes next year and jobless workers may see a cut in benefits.
That’s because the state owes $721 million to the federal government — money it borrowed to pay its share of unemployment benefits. Only the first interest payment — $22 million due next month — has been accounted for.
I sat down with state Labor Commissioner Mark Butler to see how he plans to repay the principal and make future interest payments. Butler has assembled a task force in his department to come up with a long-term game plan. The task force, which has been meeting since May, plans to offer its recommendations to Butler later this month. After he decides on a course of action, the ball will be passed to the governor and state Legislature, which will have to act when it convenes in January.
But before we get into what the task force is considering, here’s a little background.
Georgia, like most other states, started borrowing during the Great Recession so it could continue to pay benefits to laid-off workers. We’re not talking about extended federal benefits here, which give some jobless workers as many as 73 weeks of additional coverage after the state’s payments are exhausted. We’re talking about the state’s responsibility, which is the first 26 weeks of benefits.
To cover those 26 weeks, Georgia employers pay unemployment insurance taxes into a special fund. Annual payments average $187 per employee. But, with our abnormally high unemployment rate, the fund started running out of money in December 2009. That’s when the first borrowing occurred, and the tab is now $721,080,472.
To repay the money, the task force has been considering many options. Not all will be recommended, but more than one option will be needed to cover the debt. Ideas include:
– Raising employer taxes, which Butler said he will try to limit as much as possible so job creation is not stifled. Companies pay two unemployment insurance taxes. Because of the outstanding loan, the federal portion of the tax will rise next year by $21 per employee, officials said. The state’s portion of the tax, which increased 35 percent this year, could rise again. Butler already is empowered to increase the tax rate by another 15 percent, but he’s leaning against doing that.
– Cutting weekly jobless benefits, which average $260 now.
– Reducing the number of weeks — now 26 — that state benefits are paid.
– Revamping the current system. For example, employers only pay taxes on a worker’s first $8,500 of annual income. That could be raised under one proposal being considered.
– Borrowing money to repay the entire loan. But there are legal complications, including the likelihood that a constitutional amendment would be required to do that.
There is a sliver of good news amid these depressing options. For the past three months, the state has not needed to borrow more money, largely because initial claims have declined.
“We should have enough money to pay unemployment benefits [without borrowing] for the rest of the year,” Butler said.
Here’s hoping he’s right.
- Henry Unger, The Biz Beat
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