Unemployment Insurance Tax Rate Likely To Increase
By ADAM RUSSELL
The state's Unemployment Insurance tax rate will likely increase for Texas' business owners, said Texas Work Force Commission spokesperson Ann Hatchitt.
But the question remains: "How much?"
A Texas Workforce Commission projection for the Unemployment Compensation Trust Fund estimated the account would sink more than $833 million below statutory levels by Oct. 1, and is expected to cause an increase in the unemployment insurance tax rate on employers, she said.
Statutory levels established by the Legislature require a balance of 1 percent of all taxable wages in the state, or $852.2 million, to be available for unemployment compensation. The fund is estimated to be at $18.8 million by October.
According to estimates given to Sen. Kevin Eltife, R-Tyler, by the TWC, $2 billion will be needed to replenish the fund. That money will either be loaned to the state by the federal government or bonded, he said.
Either way, the bulk will be paid back by the state's employers, Ms. Hatchitt said. Projections on the deficit tax rate increase are in the works, she said.
Eltife, in an attempt to reduce the impact on employers, introduced legislation that he said would "cut the strings attached to federal stimulus" money to be used to replenish the fund, around $555 million, at no cost to businesses.
"Borrowing $1.5 billion instead of $2 billion will result in much lower interest cost, thereby lessening the burden on businesses which ultimately have to repay the debt," Eltife said.
Senate Bill 1569 has provisions to accept the stimulus funding and revert back to prior law "once that federal funding has been exhausted."
Eltife said legislators are "hung up on the changes in state law" needed to accept the stimulus funding but that his legislation addresses those concerns with the ability to review the changes and revert back to prior language.
A Task Force, appointed by Gov. Rick Perry, Lt. Gov. David Dewhurst and House Speaker Joe Straus would be the mechanism by which Eltife's legislation would allow the state to accept the stimulus funding. The task force would monitor the implementation of the legislation and make recommendations to the TWC by January 2012.
The TWC would then determine whether changes should be made.
The current balance in the fund is estimated at $953.8 million. However, 2009 commission numbers from the week of March 28 show the TWC is paying out more than $74 million a week in compensation to almost 264,000 unemployed Texans on continuing benefits.
In the same week in 2008, the fund was paying more than $25.5 million a week to almost 95,000 unemployed. The state's unemployment rate sits at 6.9 percent, around 2 percent below the national average, Ms. Hatchitt said.
The commission based its projection on a formula that includes the number of unemployed, the duration of their compensation and the replenishment rate of the fund from taxes.
"The amount (of taxes) being collected is not keeping up with the amount going out," she said.
In an April 7 letter, TWC Executive Director Larry Temple reported the projections to Dewhurst, Perry and Straus. He said the estimates are based on "economic assumptions subject to significant future changes that cannot be known."
Perry has made clear that he does not want the stimulus money because it may burden businesses after the $555 million is distributed.
Dewhurst, in a statement, drew no distinct line on SB 1569 and federal stimulus dollars.
"We are still trying to determine if it is in the state's best interest to accept the federal stimulus funds for unemployment insurance," he said in the statement. "I'm working hard to ensure that Texas business is not hurt in this economic downturn by adopting the federal benefits."
TWC Chairman Tom Pauken, in a statement released by Ms. Hatchitt, emphasized that "all Texas qualified unemployment claimants will receive their benefits," and that the state has the option "to borrow money from the federal government interest free if necessary," and that through "this method of borrowing interest free from the federal government, the TWC can work to minimize tax increases to Texas employers" paying into the fund next year.
This is not the first time the fund has dipped below the statutory floor, Ms. Hatchitt said. The most recent descent below sufficient levels occurred in 2002-03 when the technical and computer market soured, she said.
The minimum tax rate rose from .24 percent to .30 percent from 2001 to 2002 before rising to .67 percent by 2004. The rate began to decrease the next year and by 2008 the average settled at its lowest rate in 25 years, .10 percent.
The minimum unemployment insurance tax rate affects 75 percent of Texas' employers, according to the TWC.
The 2009 rate saw an increase to .26 percent, and further increases are expected, according to legislators and the TWC.
The extent of the rate hike is yet to be determined, Ms. Hatchitt said.
The Unemployment Insurance tax rate for 2010 will be set by Dec. 1, Ms. Hatchitt said.
"We are working very hard on the different scenarios to minimize the impact on Texas businesses," she said.
In 2003 when the fund dipped below statutory levels, the taxable wage base of $9,000 meant a minimum tax rate of .67 percent cost employers $60.30 per employee for the year. The 2009 rate of .26 percent would cost business owners paying the minimum $23.40 per employee, for the year.
Katherine Cesinger, a spokeswoman for the Governor's Office, said regarding SB 1569, the governor does not comment on pending legislation. She said he is aware of the cost employers will incur because of the tax-rate increase, but that in the long run the state will be better served by rejecting the federal funding.
"We were in the same position in 2002 and because we acted in a fiscally responsible way we are the envy of the nation," she said.
Eltife said despite Texas' position nationally, unemployment rolls continue to increase dramatically and that avoiding $80 million in interest on the $555 million makes fiscal sense. He said being fiscally responsible and dealing with unemployment and the stimulus package is a balancing act that SB 1569 will address.
SB 1569 could be heard on the Senate floor as early as Wednesday, Eltife said.
"It makes sense to take the money, not only to help unemployed Texans but it also minimizes the impact to Texas businesses," he said. "I will continue to work on a bi-partisan effort to get the votes to pass this legislation in the Senate."