Indiana Chamber Assesses Impact of State’s Early UI Loan Payoff

Kevin 51916 UI Loan Payoff Quote

Indiana Chamber President and CEO Kevin Brinegar assesses the impact of the early payoff of the state’s federal unemployment insurance (UI) trust fund loan which occurred in November 2015:

“Employers now have $327 million in additional funds available for other workplace priorities. They can further invest in their organizations and employees, as well as add more jobs, instead of sending that money to Washington as an ongoing penalty for the loan being in place.

“This early payoff, strongly supported by the Indiana Chamber, was a common sense step taken by lawmakers and Gov. Pence to help employers and their employees. It has had among the greatest impacts of any public policy over the last year on the business community.”

Background
The early payoff was accomplished by temporarily borrowing from Indiana’s reserve funds. The Governor announced today that the funds have now been paid back by employers through their regular state UI payments.

Chamber Applauds Early Payoff of the Federal UI Trust Fund Loan

Indiana Chamber of Commerce President and CEO Kevin Brinegar comments on Gov. Mike Pence’s approval of an early payoff for the state’s federal unemployment insurance (UI) trust fund loan. This is to be accomplished by temporarily borrowing from Indiana’s reserve funds during the next eight months. The funds will be paid back by employers through their regular state UI payments:

“This allows Hoosier employers to save $126 per employee or an additional $327 million in total federal penalties for 2016. That’s very significant for the business community. That money now can be reinvested by growing companies and adding more jobs.

“In the last few weeks alone, we’ve heard from several hundred businesses all across the state about how important this early payoff is to them. They appreciate the efforts of lawmakers to place this option in the state budget and the State Budget Committee and Gov. Pence for their actions to make it happen.”

New Poll Question: Your 2012 GOP Choice?

Our final legislative poll question, at least for a while, asked for your biggest "victory" of the 2011 Indiana General Assembly session.

Education led the way, with school choice scholarships and teacher performance-based pay tying for the top spot at 27%. The  two "business" choices — corporate income tax reduction and unemployment insurance reform — each collected 12% of the vote. "Other," with a variety of answers, was in the middle at 23%.

While not legislative, we can’t help but go political with our new question. With Mitch Daniels not running, who is your favorite for the 2012 GOP presidential nomination? Check out the choices (top right of the page) and share your opinion.

Vital Unemployment Bill Passes Indiana House

The folllowing is a legislative update on HB 1450 regarding unemployment insurance:

Bill # and Title: HB 1450 – Unemployment Insurance
Author: Rep. Dan Leonard (R-Huntington)

Summary: Establishes the weekly unemployment benefit amount as 47% of the individual’s prior average weekly wage. This is calculated by dividing an employee’s earnings during a year (regardless of how many weeks the employee has worked) by 52. Establishes the maximum weekly benefit amount at $390 (which is the current maximum). This change will not become effective until July 1, 2012. This means that people currently drawing unemployment benefits will see no change to their benefits. Places all employers into Rate Schedule E (a lower rate) for the years 2011-2020. Establishes a 13% surcharge for employers to pay into the unemployment insurance solvency fund in order to pay interest due on the outstanding balance of federal loans.

Chamber Position: Support

Status: The bill passed out of the House with 61 votes and was sent to the Senate Tax and Fiscal Policy Committee for consideration.

Update/Chamber Action: In addition to working to get the bill passed in the Senate, the Indiana Chamber is also involved in researching the issue of whether bonds could be issued to pay off the loan to the federal government (a little over $2 billion was owed as of late January). Besides the possibility of getting a lower interest rate (currently the federal government is charging around 4% interest on the outstanding loan balance whereas the interest rate might fall to around 2-2.5% under a bond), if the loan was paid off then Indiana employers would not lose their federal credit toward the payment of their federal unemployment taxes. While unemployment insurance taxes will increase next year (and they must to help return the system to solvency), the Chamber-led shift to Schedule E rates will result in $2 billion in savings (over the intended new rates) for Hoosier employers over the next 10 years.

Unemployment Insurance System and Trust Fund Update

As of January 13, 2011, Indiana had borrowed almost $2 billion from the federal government in order to pay unemployment claims. What does this mean for Indiana employers? Under federal law, if a state has an outstanding loan balance on January 1 of two consecutive years and has not paid the balance by November 10 of the second year, employers will lose 0.3% of their federal unemployment tax credit for that year (Indiana first borrowed money in November 2008).

The federal unemployment tax is currently 6.2% on the first $7,000 of wages and employers get a credit of 5.4%, which means that employers pay 0.8% or $56 per employee to the federal government. With the loss of 0.3% of the credit, all Indiana employers will pay an additional $21 per employee to the federal government. This is estimated to cost Indiana employers around $58 million in 2011. Indiana employers will continue to see this 0.3% loss for the next two years under the current situation, so by 2013 employers will pay an additional $63 per employee (approximately $175 million total). This money goes to pay down the outstanding loan balance. Also, unless Congress takes action, Indiana will be obligated to pay interest on the loan. This is estimated to be around $75 million for 2011. This cannot be paid out of the state’s unemployment trust fund. Bottom line: Barring action by Indiana’s General Assembly this session, employers would have to also pay this amount through a special assessment.

Over the past several months, the Indiana Chamber has worked very closely with the governor’s office, the Department of Workforce Development and some key legislators to craft a solution to help Indiana employers. As it currently stands, Indiana employers will be subject to the tax rates in Rate Schedule B for this year and then move to Rate Schedule A, which contains the highest rates, next year. A preliminary bill draft has a provision that would put all Indiana employers into Rate Schedule E (with its lower tax rates) for the next several years. By doing this, the amount of money saved by employers having to pay less into the state’s unemployment insurance trust fund will at least offset the increased amounts they will have to pay because of the loss of the federal credit and the payment of interest through a special assessment.

The Chamber has also been involved in promoting the idea of having bonds issued to raise money to pay off the federal loan. There would probably be interest savings, but the real benefit would be that Indiana employers would have their federal tax credit restored to the 5.4% level.

C’mon Congress: UI Fix Won’t Happen by Itself

There is a reason the Indiana Chamber advocated in the 2010 legislative session for a two-year delay in the state’s unemployment insurance tax increase. That’s because two major things needs to happen — and both will take time. One is a comprehensive look at the state system; that means reviewing eligibility and benefit levels in addition to simply raising the tab for employers. Second is that Congress needs to craft a national solution to the billions that are being borrowed by numerous states, ones that do not have the capability to pay back the loans or the interest.

Indiana lawmakers did grant a one-year delay, saving employee jobs as employers could ill afford the $400 million tax increase. Little progress, however, has been made on the two elements to the long-term solution. Thus, another delay will certainly be on the agenda come January.

Stateline.org, in a story yesterday, details the dollars involved nationally and the need for Congress to act.

More than 30 states have borrowed nearly $40 billion. Some of the current totals:

  • California, $7.5 billion
  • Michigan, $3.8 billion
  • New York, $3.2 billion
  • Pennsylvania, $3.0 billion
  • North Carolina, $2.4 billion
  • Ohio, $2.3 billion
  • Illinois, $2.2 billion
  • Others topping $1 billion are Indiana ($1.7), New Jersey, Florida, Texas and Wisconsin

According to the story:

It adds up to more borrowing for the programs than ever before, and it’s likely to balloon by year’s end. If interest rates projected at around 4 to 5 percent were added to that total amount, it would force states to pay an additional $1.6 to $2 billion currently unaccounted for. And that’s not the only additional fee that could be imposed. For every year the loans aren’t paid back, employers will lose at least 0.3 percent from the federal credit. That could mean that an employer’s tax rate of 1.1 percent would inflate to 1.4 percent.

Doug Holmes, the president of UWC Strategies, a business-oriented consulting firm, says 25 of the 31 states borrowing federal dollars will be unable to pay off their loans in time unless Congress acts soon to revise the rules. But this may be an inopportune time for Congress to try to renew the interest-rate moratorium, says Mike Katz, of the National Association of State Workforce Agencies (NASWA). Nothing is likely to be considered before the election, and if Republicans make substantial gains, as is expected, a new stimulus is very unlikely.

Michigan, a state that has a federal unemployment insurance debt close to $4 billion, provides a striking example. During the last recession in 2002, state lawmakers raised weekly benefits by about 20 percent. Policies like this led the state to unemployment insurance insolvency in 2006, three years before the surge of borrowing among other states began. Because of this, Michigan has already felt the federal penalties that most states are now fearing.

The closest that states have ever come to this level of borrowing happened in 1983, when the recessions of the mid-1970s and early 1980s added up to a collective unemployment insurance debt of $28 billion (the number is adjusted to 2007 dollars). During the first few years of the 1980s, Congress passed a series of reforms that aided the ability of states to pay off the loans. 

By 1990, all the outstanding debt was paid off, but much of that was aided by a prosperous economic rebound throughout the mid- to late ’80s. “If we’re going to recover from this period, we need to get lucky,” says NASWA Executive Director Rich Hobbie. “That is a steep hill to climb.”

3 Weeks, 3 Big Issues at Statehouse

A popular phrase about Washington politics is that the the republic — or at least your tax dollars — are safer when Congress is not in session. If that is the case, one can rest easy for a fortnight (always liked that British term). Snow shut down the nation’s capital last week and a President’s Day recess takes lawmakers back home or elsewhere in the coming days.

What about in the Hoosier state? Legislators seem determined to exit Indianapolis quickly. Whether any harm is done before that time remains to be seen. The General Assembly session must end by March 14, but the committee deadline is being pushed ahead by a week and all involved are trying to wrap up business by March 5. Is that good or bad for you?

  • Good if the increase in unemployment insurance taxes is delayed. It seems straighforward. Leave last year’s increase intact and companies will pay near $350 million more in taxes, the trust fund will remain woefully out of balance and employees will lose their jobs because battered businesses have no other place to cut. Legislators, particularly those in the House, need to hear from you. Check out the details and make a difference
  • Bad if they proceed with passing legislation that prohibits employers from having a policy that disallows guns in the workplace. This appears headed to the governor, however, so a veto is likely the best hope for common sense to prevail. Here are the details
  • Good if someone in power stands up for taxpayers and the poor and strives to bring about meaningful township reform. Our money is not being used wisely and the poor are not getting all they deserve with administrative costs that exceed actual relief. Meaningful is not a township-by-township referendum, but — for a start — getting rid of advisory boards and letting county councils have binding budget overview. Read more

Sure, there are a few other issues out there. But get these three right and the good will exceed the harm.

Bauer, Bosma, Long and Simpson Set the Stage

The 2010 legislative session might officially begin Tuesday with Organization Day. The discussion started today, however, at the Indiana Chamber’s Central Indiana Legislative Preview. The four caucus leaders had plenty to say during an hour-plus dialogue. Just a few of the highlights:

  • Plenty of debate and disagreement over the property tax caps. House Speaker Pat Bauer (D-South Bend) tried to insert some ABCs into the 1-2-3 argument, with his main point being that assessment problems still need to be fixed. Senate President Pro Tem David Long (R-Fort Wayne) warned of constitutional challenges (lawsuits) if the caps are not passed. Senate Minority Leader Vi Simpson (D-Bloomington) offered that "we really don’t know if 1-2-3 are the right numbers" and said there should be no exemptions for any counties
  • State budget: House Minority Leader Brian Bosma (R-Indianapolis) says there are two priorities for his caucus — no new taxes and no additional spending. Long: "Any bill that has spending in it is more than likely dead on arrival."
  • Party lines were clearly at play on federal health care reform, with Long "scared to death about what they’re talking about in Washington," while Simpson is "all for a national health insurance plan that insures more people." Bauer arrived in time to add that a fortune could be made and debt problems resolved if a 25% premium charge was placed on every advertisement both for and against health care reform
  • Local government reform: Simpson says exemptions for certain counties or areas have no place in such legislation; Long sees much duplication in township services in urban areas, but not necessarily in rural places; and Bauer gave arguments on both sides of the question before asserting that reform "must take place in steps and some steps will be taken this session."
  • Support of delay in unemployment insurance tax increase on employers: Bosma said "yes" to delay or even permanently postpone; Bauer adds that modifying those increases should take place in conjunction with a jobs program; and Simpson notes her caucus will "undoubtedly support a delay" but also believes that reforms in the hearings and appeals processes should be part of the equation
  • Education reform was addressed with Long contending that while some say Superintendent of Public Instruction Tony Bennett is a bull in a china shop, "I say we need a bull in a china shop. He needs to continue to push the envelope." Simpson says Democrats are more open to these discussions due to the efforts of President Obama. Bauer wants the focus more on students, expecially those struggling in inner cities, than teachers. Bosma sees the coming decade as one of "examination and action" on education, but that will not be the case in the 2010 General Assembly session

Bottom line: Excellent discussion; there will be plenty of issues in play during the short two-month session; and no one really knows what the outcomes will be.

Big or Small, UI Tax Hike is Bad News

When the Indiana General Assembly passed legislation to increase unemployment insurance (UI) taxes by more than $700 million over the next two years, Senate Republican leadership claimed it was an effort to protect small businesses from paying the way for larger companies.

Too bad the size of a company has nothing to do with its UI taxes. The determining factor is a company’s unemployment history.

The current tax rates range from 1.1% to 5.6%. In 2009, the average company paying the 1.1% minimum has 17.3 employees. The average company paying the 5.6% maximum has 15.8 employees.
 
Yes, some companies at the current 1.1% rate will see a reduction in unemployment taxes from the current $77 per employee. In 2011, that reduction will be a miniscule $2 per employee.
 
More significantly, some employers will go from the lowest rates to the highest. There will be companies paying 1.1% on a $7,000 wage base ($77 per employee) in 2009 that will pay 9.5% on a $9,500 wage base ($902.50 per employee) in 2010. That is an unconscionable 950% tax increase.
 
Calculate your company’s tax increase here. Big or small, it is the last thing needed at this time. It’s bad enough that it has been enacted; trying to pass it off as a benefit for small business is ridiculous.