Unemployment Insurance Trust Fund in Peril
Georgia’s Unemployment Insurance Trust Fund, the fund the state uses to pay unemployment insurance claims, is broke.
By Georgia Labor Commissioner Mark Butler
ATLANTA -- Georgia faces a crisis that, if ignored, has the potential to cause long-term, severe financial distress to our residents, our businesses and our stretched-thin state budget.
The issue? Georgia’s Unemployment Insurance Trust Fund, the fund the state uses to pay unemployment insurance claims, is broke. But it’s not just broke, it’s in debt to the federal government, and the debt and interest are piling up. We must address this issue now or face massive interest payments to Washington.
The Georgia Department of Labor had been borrowing from the federal government for years before I was sworn in as your Labor Commissioner. This borrowing continues today and is required by state law. I have developed a plan that will get us out of debt, pay back the interest, and prevent Georgia from being in debt to federal government again. I cannot do this alone. The General Assembly must approve these changes for our Unemployment Insurance Trust Fund to become fiscally sound once again.
How did we get into this much debt? In short, the “trust” was taken out of the trust fund. In an attempt to curry favor with Georgia businesses, Gov. Roy Barnes declared a “tax holiday” before Barnes’ failed 2002 re-election campaign. Businesses stopped paying into the trust fund. By the time we hit the Great Recession – and many, many Georgians became unemployed through no fault of their own – the $2 billion Unemployment Insurance Trust Fund had been reduced by $1.3 billion.
Plainly speaking, Georgia had not saved for that rainy day.
The math is simple. Unemployment spiked and we paid out the trust fund’s remaining $700 million on unemployment benefits. Then, we had to borrow $721 million as more people filed for unemployment benefits. We’re still borrowing. Had we been fiscally conservative, we would have sustained our $2 billion in reserves, rather than using it as a political kitty to buy votes. Georgia would never have borrowed federal dollars and would be “in the black” today.
Now we have a three-tiered problem: a large loan hanging over our heads, interest payments on that loan, and a trust fund that’s broke. If the General Assembly does nothing, Georgia law will force us to continue borrowing money from the Obama Administration – compounding our financial problems and putting them off for another day.
As long as our loan remains outstanding, both federal and state fees will increase. Last year, businesses paid $42 per employee, per year for federal unemployment insurance. In January, the federal government increased that annual fee by $21, raising the total cost to $63 per employee. An additional $21 will be added each year until employers are paying $105 per employee in federal charges. In addition to these federal fees, state unemployment premiums will double if we do not take legislative action this year. These extra costs are certain to make Georgia employers think twice before hiring new employees.
By contrast, our neighbors in South Carolina – who borrowed more than we did – have already begun to repay their debt. Should they eliminate their debt before we do, South Carolina could win an advantage when recruiting new industries. Georgia must remain competitive. That means making debt repayment a priority. If we buckle down and pay off the loan, we can avoid many of the automatically-generated federal and state fees.
The Georgia Chamber of Commerce and the state wing of the National Federation of Independent Businesses, agree that something must be done now. These business leaders are willing to pay their share to end the federal re-payment plan early.
To pay back our loan quickly, we must provide a balanced sharing of costs between employers, state government and future benefit recipients. Nothing in my plan will affect those who are currently receiving benefits. I want to ensure that Georgia stays fiscally conservative so you can put your “trust” back in our trust fund.
Unfortunately, the State House did not introduce legislation that would address the loan payback. On the other hand, the State Senate did pass a bill, but some are already questioning its constitutionality. Legislation to raise or reduce revenue must originate in the House, per our state Constitution. If we try to correct our trust fund problem with a Senate bill, it could be challenged in court and thrown out. We would be back at square one.
Constitutional questions could be eliminated if the Senate amends an existing House Bill to include comprehensive solutions, pay down our debt, pay the interest and take our trust fund back to solvency. With the willingness shown by Senate leadership and interested members of both House and Senate, I know we can accomplish this.
With the help of Governor Deal and the General Assembly, Georgia can make our workforce strong again. Without taking real action in the closing days of this legislative session, we will repeat our predecessors’ failed policies. I promised you when elected that, as a Conservative, I would do better. With everyone’s help, we will.