Modernizing Texas’ Unemployment
Insurance System
House Select Committee on
Federal Economic Stabilization Funding
March 10, 2009
Don Baylor, Jr.
Senior Policy Analyst
baylor@cppp.org
Texas Unemployment is Soaring
Up 49% since beginning of recession
• 75,800 jobs lost in
Jan 2009; worst
monthly job loss
on record
Texas Unemployment Rate in the
Current Recession (Dec. 2007 - Jan. 2009)
6.4%
6.5%
6.0%
• Unemployment
rate may not peak
until 2 years after
recession ends
5.5%
250,000 more Texans
unemployed since
December 2007
5.0%
4.5%
4.4%
• TX ranks 50th in UI
recipiency rate
(TX: ~20%;
US avg: 37%)
4.0%
Dec Jan Feb Mar Apr May Jun
07 08 08 08 08
08 08
Jul
08
Aug Sep Oct Nov Dec Jan
08 08 08 08 08 09
Sources: Texas Workforce Commission, CPPP Analysis.
2
Unemployment Insurance
Modernization Act/ARRA
• Provides $7B in incentive funding for
states to modernize UI eligibility
• Potential TX Share: $555.7M
• To draw down funds, states must make
policy changes (if not already enacted)
• Changes must be enacted by 2011
– Implementation can be delayed up to one
year after certification (Summer 2010)
3
Unemployment Compensation
Trust Fund: The Basics
• Taxable Wages (first $9,000 per worker)
• Ceiling = 2% of Taxable Wages (~$1.7B)
– If above, Employer Rebates are issued
• Floor = 1% of Taxable Wages (~$860M)
– If below, Deficit Tax imposed
• 2008: $1.16B in Employer Contributions
– $1.35B in UI Benefits
• 2009 Claims at least 2x higher than 2008
• Oct. 1 Projection: $812M below Floor
– No TEF/SDF Transfers from Holding Fund
4
Why the Trust Fund is Insolvent
Taxable Wage Base Not Keeping Up With Total Covered
Wage Growth in Texas (1990-2007)
$500
189%
Growth
$450
$400
$350
Total Covered
Wages
$300
$250
Gap between Total Wages
and Taxable Wages has
widened from 3:1 to 5:1
$200
$150
$100
74%
Growth
Taxable Wages
$50
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
$1990
$ Billions
• Taxable wage
base not suitable
• Low ceiling
prevents buildup
of reserves
• “Backwards
Financing” Model
• Issued $1.4B in
bonds in 2003
• Will need to
borrow $2-$4B to
keep Trust Fund
afloat (20092011)
Source: Texas Workforce Commission, CPPP Analysis
5
Trust Fund Reserves Not
Adequate for Downturn
UI Trust Fund Not Prepared for Any Recession
Balance Needed for Solvency at
Highest-*Ever* Payout Rate
$5
Balance Needed for Solvency at
Highest *Recent* Payout Rate
$4
$3
Statutory Ceiling on Balance
$2
Actual Balance
$1
Statutory Floor on Balance
$0
2012*
2009*
2006
2003
2000
1997
1994
-$1
1991
Trust Fund Balance (in $B)
$6
Fiscal Year
*projected
Source: Texas Workforce Commission, CPPP Analysis
6
Consequences of Insolvency
• Extreme Volatility in Employer Tax Rates
(double or triple during recessions)
• Large % of Employer Taxes directed to
debt obligations
• Jeopardizes funding for Economic &
Workforce Development
• Labor Code Sec. 203.028
7
Deficit Spending a Key Driver of
UI Tax Increases
Employer Taxes Rise at Worst Possible Time,
When Economy Is Weakest
3.5%
5%
2.5%
4%
2.0%
1.5%
3%
Average Tax
Yield
Annual Percent
Change in Real GSP
Average Tax Yield
3.0%
6%
3.07%
Annual Percent
Change in GSP
2%
1.90%
1.0%
1%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008* 2009* 2010*
*projected
Source: Texas Workforce Commission & Texas Comptroller, CPPP Analysis
8
Employer Deficit Tax will be
Levied to Rebuild Trust Fund
Employer Deficit Taxes in 2010 Could be Cut by 70%
by Collecting UIMA Incentive Funding
$1,000
$935 M
Employer Deficit Taxes ($M)
$900
$800
$700
$600
$500
$400
Deficit
Deficit
taxtax
rate:
1.09%
rate:
1.09%
$294 M
$300
$200
Deficit
Deficit
tax
taxrate:
rate:
0.34%
0.34%
$100
$TX Does NOT Collect UIMA Funding
TX Does Collect UIMA Funding
Source: Texas Workforce Commission, CPPP Analysis
9
Why UIMA Reforms Are Good for
the Texas Economy
• Stimulates Consumer Spending: $1 in
UI Benefits = $2.15 in Econ. Activity
($1.2B)
• Lessens demand on state-funded social
services (CHIP, Medicaid, TANF)
• Would reduce new employer UI taxes
by nearly 70% in 2010 (Deficit Tax)
10
UI Reforms to
Draw Down $555M
Best Reform Package
• Alternate Base Period
• Comparable Work
Search (Part-time)
• Extended Benefits in
Training
Conforming Legislation:
HB 2623/SB 1421
UIMA Benefits as Share of (Est.)
Benefits Paid, 2010
UIMA
Benefits:
2%
Current
Benefits:
98%
Source: Texas Workforce Commission, CPPP Analysis
11
Alternate Base Period
Standard Base Period
1Q 2Q 3Q 4Q 1Q 2Q
08 08 08 08 09 09
W W W W W (W)
Lag
Filing
Alternate Base Period
2Q 3Q 4Q 1Q 2Q
08 08 08 09 09
W W W W (W)
Filing
• Legacy of manual
wage records
• 20 states use ABP
(GA, OK, NM, VA)
• Passed TX House
(2007)
• Additional
Benefits per year
($40M)
• Required to
access any
federal funds
($185M)
12
Comparable Work Search
(Part-Time)
• Many workers are limited to part-time work
due to compelling reasons
• “Full-time” Work Search Requirement NOT in
Statute or Rule
• Negatively impacts women, students and
elderly
• DOL Guidance: If “majority of weeks in base
period” are part-time, then can search for
(comparable) part-time work
13
Extended Benefits in Training
• Would only apply to “TWC-approved” training
• Current law: “An individual may not be denied
benefits because the individual is in training
with the approval of the commission.”
– Need conforming legislation to get certified
• Critical for Unemployed who need Retraining
– Boosts economy with in-demand skill sets
• Exhaust federal extensions before becoming
eligible
14
Recap & Recommendations
1. Enact HB 2623/SB 1421 to draw down
$555.7M in 2009
–
–
–
Decrease new employer taxes in 2010 by ~70%
Diminish borrowing costs
Stimulate economic activity
2. Chart a path to Trust Fund Solvency
•
•
Establish a long-term plan that adjusts taxable
wage base and considers covered wages for
statutory triggers, especially ceiling
Stabilize funding for workforce & economic
development
15
Use of This Presentation
The Center for Public Policy Priorities encourages you to reproduce and distribute these slides, which
were developed for use in making public presentations.
If you reproduce these slides, please give appropriate credit to CPPP.
The data presented here may become outdated.
For the most recent information or to sign up for
our free E-Mail Updates, visit www.cppp.org.
© CPPP
Center for Public Policy Priorities
900 Lydia Street
Austin, TX 78702
P 512/320-0222 F 512/320-0227