Tennessee’s insurance trust fund under pressure
NASHVILLE — Tennessee’s unemployment compensation trust fund paid out a quarter billion in jobless benefit claims during April to workers idled during the coronavirus pandemic as pressures mount on a once-$1.2 billion pool that was already below federally recommended solvency levels.
A total $226.4 million in additional funds flowed out in April in the form of state payments to hundreds of thousands of Tennesseans without work, according to state Department of Labor and Workforce officials.
An April 4 projection from the nonpartisan Tax Foundation estimated Tennessee’s fund could last 16 weeks before running out of money based on a combination of its 2020 solvency level as well as initial and continuing claims.
If the fund runs dry, it would force the state to seek a loan
from the federal government or face raising unemployment tax rates on businesses already slammed by the coronavirus’ economic impact. And because Tennessee falls below the U.S. Department of Labor’s recommended funding balance, the state would have to pay interest on any loans it gets from Uncle Sam.
The Tax Foundation ranked Tennessee’s trust fund at No. 26 among the 50 states and the District of Columbia. Georgia’s is rated even worse, with the state ranked No. 40 as of April 4 with 11 weeks before problems could arise.
During his April 30 update on Tennessee’s COVID-19 response with reporters, Tennessee Gov. Bill Lee acknowledged that “we are concerned in the sense we want to track it and know what’s happening and make plans as such.”
A week earlier, state Labor and Workforce Development Commissioner Jeff McCord described the fund as being in “really good shape” and in one of the “best shapes in the country.”
Tennessee’s total $226.4 million contribution to unemployment during the entire month of April was part of an estimated $850 million in benefits paid to 300,000-plus unemployed Tennesseans.
Figures provided to the Times Free Press by the state labor department show the federal government picking up about $626.3 million of the total tab. That money comes from the special Pandemic Unemployment Assistance and Federal Pandemic Unemployment Compensation programs created under Congress’s Coronavirus Aid, Relief and Economic Security Act.
The Federal Pandemic Unemployment Compensation funding is what is providing $600 more per week for jobless Tennesseans.
As of Friday, Tennessee was responsible for paying out state and federal claims for 307,327 people, Tennessee Department of Labor and Workforce Development spokesman Chris Cannon said in response to Times Free Press questions. The rate has been even higher in the weeks prior.
The number of claimants receiving Tennessee Unemployment Compensation, whose maximum benefits are $275 a week, is 262,584 and the number receiving Pandemic Unemployment Assistance is 43,201, Cannon said.
Meanwhile, George Wentworth, senior counsel with the National Employment Law Project, said in a Times Free Press interview Friday that “it looks like Tennessee has some of the lowest unemployment taxes [on employers] in the country. The average tax rate in 2019 was .2%, which ranked 50th in the country.”
The list includes the District of Columbia.
Tennessee’s unemployment trust fund challenges are expected to come up for state lawmakers, who are scheduled to return to the state Capitol on June 1 and resume work on the budget. Before leaving on March 19, the General Assembly slashed more than $1 billion at Lee’s direction from his original budget, approving a scaled-down, $29.8 billion budget.
Senate Finance Committee Chairman Bo Watson, R-Hixson, said Sunday he expects lawmakers will look at the unemployment trust fund, among other things.
“I think the honest answer is no one ever anticipated this kind of unemployment in the time span that we’ve seen it, right? I mean no one expected to go to 14% or whatever in a period of six to eight weeks, no one would have thought that,” Watson said.
He noted that in response to the 2008 recession, Tennessee changed its unemployment tax on employers and installed “various triggers that if the fund dropped below a certain amount, then that changed the premium rate that employers would have to pay. Obviously, the challenge that we now face is that many of those same employers are either shut down or significantly reduced their operations.
“That’s particularly so in the manufacturing sector, where major employers … have essentially shut down operations for a period of time,” Watson said.
In turn, that “creates a unique challenge in terms of raising the premium as the unemployment fund balance drops on companies that are already under significant financial pressure,” Watson added.
Noting the U.S. Treasury Department’s most recently issued “frequently-asked-questions” on the CARES Act relative to states says “that some of that money could be used to shore up an unemployment trust fund. That would be one pot of money that we might look at to determine if we wanted to use some of that money for those purposes.”
If Tennessee’s trust fund indeed runs out of money, Watson said, “you’re forced into the situation that California faced, which is going to the federal government to borrow money which you would then pay interest upon.
“My hope is that as we restart the economy that the unemployment rate will start to subside,” he said. “We’ve already seen that right here people are off unemployment this week and the prior week. Hopefully as we start restarting the economy it won’t get to the crisis point.”
But if it remains at current levels or runs higher, then “obviously every [state’s] fund is going to be challenged to fund unemployment at these record highs,” Watson added.