Employers might pay to rebuild Ohio unemployment
WASHINGTON — Ohio’s unemployment compensation fund is in trouble — and a provision in President Donald Trump’s budget may provide yet another incentive for state lawmakers to finally fix the problem.
The fund, which is used to pay workers who file for unemployment and is supposed to be self-sustained through payroll taxes, has not been solvent since 1974. And if a recession were to strike tomorrow, the fund would only have enough to pay benefits for four months under current solvency standards.
Trump’s proposed fiscal year 2020 budget would tighten those standards.
Under current law, if a state unemployment trust fund has an outstanding loan from the federal government for two years, employers effectively pay a higher federal unemployment tax, according to Douglas Holmes, president of Strategic Services on Unemployment & Workers’ Compensation, an association representing business interests on employment issues. Those higher taxes are used to offset the debt.
Trump’s proposal would make it that so that if a state’s solvency falls below a certain level, it would immediately trigger a higher tax rate for employers, with the additional money addressing the solvency. States with solvent funds would not be affected.
Ohio has tried — and failed — numerous times to shore up its unemployment compensation fund. Most recently, an effort in the
Ohio General Assembly stalled last year.
But the problem is dire, and not getting any better, warns Kevin Shimp of the Ohio Chamber of Commerce, who said only Texas, Massachusetts, California and the U.S. Virgin Islands are less solvent.
He said were Ohio’s fund solvent, Trump’s proposal would have zero impact on payroll taxes. But the fact that it has been so insolvent for so long means that employers would get less of a tax credit, meaning they’d see taxes go up.
Andrew Stettner of progressive think tank The Century Foundation said Ohio’s fund has been a “festering problem that has been ignored for too long.”
The decline of the auto industry beginning in 2003, combined with the Great Recession and taxes that werelower than they should’ve been to pay for a selfsustaining system, resulted in years where there were more claims against the fund than money coming in.
Ohio isn’t rare in
having borrowed money: In the 1990s, many states cut unemployment taxes. But in Ohio, the recession as well as already-low taxes was “a double whammy.”
Trump’s budget would require that those whose funds couldn’t even pay for six months would be forced to get to at least six months’ worth of solvency through increases in the federal unemployment tax.
Trump made a similar proposal in last year’s budget, but Congress didn’t take it up.
“We need the federal government to fix this problem,” Stettner said. “It’s something President [Barack] Obama proposed, it’s something President Trump proposed, but if there’s not a recession, people in Congress aren’t thinking about this topic.”
State Sen. Kirk Schuring said Trump’s proposal is yet another wake-up call for Ohio lawmakers. The Canton Republican has been sounding the alarm for years and has tried repeatedly to broker a deal between business and labor groups. He said he’s hopeful Trump’s proposal will renew
interest in finding a solution, one that inevitably will require businesses to pay more into the trust fund and jobless workers to receive reduced benefits.
“It’s just another example of why we need to do something in Ohio to develop a solvency plan with business and labor. This may cause some people to come back to the table,” Schuring said.
Even without arecession, Ohio’s fund is projected to go broke again by 2025, according to the Ohio Department of Job and Family Services. As of March 15, 2019, Ohio’s trust fund balance was $821 million — a drop of more than $150 million in just four months— and well below the state’s minimum safe level of $3 billion.
The U.S. Department of Labor uses a variety of calculations to determine whether a state’s unemployment compensation fund is solvent.
“Any reduction in that credit penalizes employers and especially businesses that don’t utilize the unemployment system,” said Chris Ferruso, Ohio legislative director of the National Federation of
Independent Business.
The association is urging state lawmakers to take steps to shore up the system while the economy is relatively strong, before another downturn depletes the trust fund again.
The last time Ohio couldn’t meet its unemployment compensation requirements was in 2008. Back then, the statehad toborrow $3.4 billion from the federal governmentto paybenefits. It tooknearly a decade to pay back that loan.
Ohio wasn’t alone. In all, states borrowed $47 billion during the recession to pay unemployment. The difference, said Stettner, is most states recovered better than Ohio, in part because they were more aggressive on the legislative front, using the recovery to rebuild their funds. Now, 29 states are solvent.
“But Ohio really didn’t do anything big,” he said. “So it wasn’t able to take advantage of this recovery.”