INDIANAPOLIS – Indiana businesses have paid almost 45 percent more in state unemployment premiums and fees this year under a legislative attempt to repair the bankrupt system.
And that increase doesn’t include federal penalties companies have been assessed because the state still owes $1.8 billion to the federal government.
There are lots of anecdotal stories of businesses with tight profit margins where it is causing some heartburn, said Jerry Conover, director at the Indiana Business Research Center at Indiana University. It’s a painful adjustment to deal with a real problem. But it had to be dealt with.
Conover and other state and business officials have downplayed the effect of the new taxes on Indiana’s economy, saying legislators had no choice but to move forward on an old problem.
Everyone saw this coming, and people understand the need to be solvent, said Mark Everson, commissioner of the Indiana Department of Workforce Development, which oversees unemployment. There has been no uproar. The fact that we dealt with this issue is a plus. Stability is an important thing.
While 28 states are currently borrowing money from the federal government to cover unemployment claims, Indiana’s problems began years before the recession.
Businesses pay taxes into an unemployment insurance trust fund based on their history of layoffs and taxable wages of employees. That fund then pays unemployment benefits to Hoosiers who lose their jobs.
Indiana’s fund has been paying out more in benefits than it received from taxes since 2000. The imbalance was eroding the trust fund surplus even before the recession hit and swept away the remaining balance.
The state started borrowing money from the federal government to pay claims in late 2008.
Legislators in 2009 passed a massive tax increase for businesses to start paying in 2010. But they then delayed the increase, fearing the economy was still too fragile. This year, lawmakers reduced the state premium increases, but added a surcharge to pay interest on the loan from the federal government.
During the legislative session, this was estimated to total $813 million for businesses in 2011.
So far this year, businesses have paid $741.6 million to the state. Last year, the total collected from Indiana companies for the unemployment trust fund was $514 million.
Indiana’s unemployment premiums still remain below the national average even with the increase, Conover said.
And some businesses are seeing a benefit because lawmakers added more tax rates to the system depending on usage.
State officials estimate that about half of employers saw premiums decrease by an average of 46 percent per employee. The other half saw premiums rise by an average of 49 percent per employee.
Businesses hit hardest are those with a history of layoffs.
The state’s loan balance has dropped from more than $2 billion to about $1.8 billion. And the Department of Workforce Development is set to make a $60 million interest payment in September.
The law is doing what it was supposed to do, Everson said. We are on a sound trajectory to pay back the balances we owe while many other states are still struggling.
Projections show the federal loan should be repaid with interest by 2018.
In addition to the state increases, businesses are getting penalized on their federal unemployment tax because the state owes money.
This flat fee of $21 per employee is expected to cost businesses an additional $58 million in payments this year.
Rep. Dan Leonard, R-Huntington, architect of this year’s repair bill, said times are tough for business, regardless of the unemployment changes.
In the short term, he acknowledged Indiana’s economic outlook is a bit scary – dropping from leading the nation in private sector job growth last year to near the bottom in 2011.
But he believes the long-term benefits of a stable system outweigh initial discomfort.
Everything seems to be going as projected, Leonard said.
The initial success might lead to another battle next year because a key part of the package – reductions in unemployment benefits – won’t begin until 2012.
If this continues, I think we should restore those benefits, said Nancy Guyott, president of the Indiana AFL-CIO.
The cuts are ill-advised. They hurt the economy overall by taking money out of circulation and in the long run don’t help the trust fund.