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INDIANAPOLIS – Indiana is one of five states whose Unemployment Insurance Trust Fund is insolvent, according to a recent report on the preparedness of the nation heading into what could be a severe recession.
The fund is financed through taxes paid by businesses and provides unemployment payments to Hoosiers who are out of work through no fault of their own.
The National Employment Law Project examined the trust fund balances for all 50 states as of Sept. 30 compared with their average monthly benefit payments over the past 12 months.
Any state with only enough cash to pay benefits for three months or less was deemed insolvent.
According to the report, Indiana had $91 million in the bank, with average monthly benefits of $66 million.
Other states in Indiana’s category include Michigan, which has a $340 million deficit, Ohio, New York and South Carolina.
“It is particularly troubling that so many states are facing insolvency so early in this economic downturn,” the report said. “With all of the negative economic trends, it is likely that benefit payments will exceed trust fund revenues for several years, and these shortfalls threaten to leave a number of states deep in debt by 2010.”
The law project – a New York-based organization that fights for workers’ rights – encouraged legislators in many of these states to take action during the 2009 session.
Officials at the Indiana Department of Workforce Development don’t argue that the state’s trust fund is in trouble, but they point out the report is just a snapshot in time and doesn’t take into account money coming in now from employers who had payments due at the end of October.
The current balance of the fund is $58 million.
Scott Sanders, chief financial officer at the Department of Workforce Development, acknowledged that the state will likely have to borrow money from the federal government to cover benefits soon, either by the end of 2008 or in the first months of 2009.
The core of the problem is that more money is going out in unemployment benefits than is coming in from business taxes. And this imbalance has existed since 2000, when the year-end balance was $1.6 billion.
Indiana calculates unemployment insurance pool bills based on two elements. The first part of the assessment factors in the amount of money in the reserve, which has kept Indiana in the highest of five predetermined tax schedules since 2005.
For the second part of the assessment, the state looks at how much an employer has paid into the pool and how much its former employees have collected in benefits in recent years. That determines where the business lands on the rate chart.
The rates range from 1 percent to 5.6 percent, which is paid only on the first $7,000 of employees’ wages.
Opinions differ on how Indiana arrived at this crisis , but legislators raised the maximum weekly benefit every year from 1997 to 2005 and artificially held down the tax schedules for a few years to try to spur the economy.
“I think the economy has exacerbated a problem that already existed and brought it to a head,” said Rep. Randy Borror, R-Fort Wayne.
He noted it will be a contentious topic when lawmakers return in January. Although the options seem simple – reduce benefits or raise taxes on businesses – there are many ways within the system to achieve both.
For instance, legislators could limit who is eligible for unemployment rather than cutting the maximum weekly benefit of $390. Or the General Assembly could raise the taxable wage base on which employers pay. Indiana is at the federal minimum of $7,000 while the national average in 2007 was $13,855.
The Unemployment Insurance Trust Fund Board on Wednesday dissolved a subcommittee that had been working for months to come up with recommendations for a fix.
Barry Baer, a member of the subcommittee, said Indiana will probably have to borrow between $400 million and $500 million from the federal government to cover benefits between now and when the legislature can pass changes to the law.
And it will take an additional $500 million to $800 million to rebuild the fund so it is strong for the future.
“We can make recommendations, but (the legislature) is going to do whatever they want,” Baer said.
Instead, the Department of Workforce Development and the governor’s office have been working on meetings with key lawmakers, administration officials and most importantly the stakeholders in the business and labor communities – the two groups that must agree on a resolution.
For instance, they hired a consultant to provide fiscal modeling that outlines options and effects for those most involved in drafting possible legislation.
“We are trying to build a consensus,” said Jane Jankowski, spokeswoman for Gov. Mitch Daniels.
nkelly@jg.net
