One of the biggest surprises – and announcements – from Mayor Tom Henry’s State of the City address had little to do with city government at all.INDIANAPOLIS – Pressure is mounting for lawmakers to fix Indiana’s ailing unemployment insurance system.
But what happens if they don’t agree by the April 29 legislative deadline?
Senate President Pro Tem David Long, R-Fort Wayne, said he would expect a special session to be called so legislators could continue to work on a solution.
“I think that the pressure of the last two weeks will begin to force these discussions into a faster pace,” Long said. “That’s good pressure. That pressure is needed sometimes to get on top of an issue as difficult as this.”
And if the pressure doesn’t work, he would expect a federal takeover of the fund.
“I think that would be a disaster; … a Washington-style fix with tax increases dictated by a very liberal government in Washington,” Long said.
“They wouldn’t approach it in the same very fiscally conservative way that both Republicans and Democrats would do in Indiana.”
Long said a sustainable, long-term solution must be in place this year even if it takes a few years for the fund to get healthy again.
Indiana’s unemployment trust fund has been running a deficit since 2001, meaning it has been paying out more in benefits than it takes in from business taxes.
The economic crisis exacerbated the problem, and the fund ran out of money last year. The state has already borrowed $725 million from the federal government to cover unemployment claims, and that amount is likely to surpass $1 billion by the end of the year.
The task for lawmakers is threefold – restructure the system so it is solvent on a long-term basis; raise enough money to pay back the federal government; and build a comfortable reserve for the future.
The proposed solutions also have been threefold – raise taxes on employers, cut benefits and limit eligibility, all during a painful national recession.
Republicans support several of these options while Democrats have opposed benefit cuts or changes to the system that will hurt seasonal workers such as those in the construction and building-trades industry.
Gov. Mitch Daniels was unavailable for comment, but his press secretary said he “considers this issue one that must have a resolution.”
Democratic House Speaker Pat Bauer of South Bend said the legislature should tackle the issue now.
“I don’t talk about special session. You don’t talk about that. You talk about crossing the goal line,” he said. “That’s our focus.”
But House Minority Leader Brian Bosma, R-Indianapolis, said a federal takeover might not be the “Armageddon we hear,” and he doesn’t want legislators to cave on a bad solution over threats from the federal government.
He also believes Democrats are stonewalling the issue and likely will put the unemployment solution into the budget bill to gain leverage.
But Bauer said he is encouraged by the tenor of recent one-on-one discussions between the majority caucuses – Democrats in the House and Republicans in the Senate – on the issue.
“The rhetoric is now leaning toward the positive,” Bauer said. “Nobody is trying to blame the unemployed.”
A public conference committee hearing is scheduled for 4 p.m. Monday in the Statehouse, and the Democratic chairman of the panel is going to propose an initial compromise.
Rep. Dan Leonard, R-Huntington, one of the four conferees on House Bill 1379, said it would be unwise to put off finding a solution again.
“You can look at it and say, ‘Should we patch it this year – just do enough to keep the federal government out – and have to come back and patch it again? Or do we want to fix it?’ ” he said. “I want to fix it.”
If there is no movement, Leonard said, the consequences are stiff.
Although the federal government can’t actually assume control of Indiana’s unemployment system, it can cause state businesses some pain by eliminating part of a federal tax credit given to businesses.
According to the Indiana Department of Workforce Development, any state that for two consecutive years has an unemployment trust fund debt as of Jan. 1 that isn’t paid off by November can have its federal unemployment tax increased.
So in Indiana’s case, if the state still owes money to the federal government on Nov. 10, 2010, businesses in Indiana will see their federal tax credit reduced by 0.3 percent for that year – which would increase their tax burden.
In 2010, that means Indiana employers would pay an additional $58.9 million. And the increase goes up drastically every year the balances remain unpaid.
Marc Lotter, Department of Workforce Development spokesman, said those additional taxes only go to pay back the federal government; they do not go toward solving the problem that got the state borrowing in the first place.
And he said the agency that operates the unemployment system is run almost entirely on federal dollars, so the federal government “has the power of the purse string to effect changes.”
