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Study outlines seven recommendations
By Dennis J. Willard
Beacon Journal Columbus Bureau
Published on Sunday, Nov 30, 2008
COLUMBUS: The retired have Social Security.
The unemployed have jobless benefits.
On average, an unemployed Ohioan receives about $300 a week. The money comes from the state Unemployment Compensation Fund.
Ohio's fund is broke.
Gov. Ted Strickland's Department of Job and Family Services is going to the federal government to borrow $550 million.
That's a lot of money and it will carry the state only through February.
So it would be more accurate to say the Unemployment Compensation Fund is not only broke, it is broken.
You will hear excuses about how the economy is bad, the jobless rate is climbing and more and more people are seeking unemployment benefits.
This is a smoke screen to divert attention from the fact that Strickland, the two governors who preceded him and state lawmakers past and present have had their heads in the sand on this issue for far too long.
The underfunded compensation pool of money also is the story of the never-ending struggle between business and labor, and politicians protecting themselves instead of formulating responsible and reasonable public policy.
Employers contribute to the fund on the first $9,000 they pay to each employee. In return, qualifying unemployed workers have access to some money to tide them over during the search for a new job.
It is an insurance pool, plain and simple.
Any time the government reaches into an individual's pocket or demands dollars from the revenue stream of a business, it is a tax.
So businesses in Ohio are wary of any discussion about raising the ''taxable wage base,'' or the $9,000 subject to the unemployment compensation fund.
Economic gurus will harp that taxes should never be raised during a recession and instead the unemployed should just have their benefits cut or capped.
When you hear this, remember this is an insurance fund and ask these same financial wizards whether any of them have stopped paying their home, health, auto or life insurance premiums just because they are supposed to be tightening the belt during these tough economic times.
Yes, more ex-workers are seeking the unemployment insurance they earned and more are staying on the rolls for a longer period because on average it takes longer to find a new job.
The ex-workers in Ohio who qualify for benefits receive pennies more than the U.S. national average, but our state has a higher threshold to qualify for the benefits in the first place.
So any discussion of cutting or capping benefits also should include a debate over lowering the threshold for qualifying, which will effectively stifle any talk of benefit reductions.
No one is getting rich on $300 a week and businesses in Ohio have had it better than most other states for more than a decade.
The taxable wage base has been frozen in Ohio at $9,000 since 1995, compared to the average U.S. figure in 2007 of $11,482, according to Policy Matters Ohio. About 16 states index the figure to allow for the natural year-to-year growth in
wages, but Ohio does not. While a number of states are facing problems similar to Ohio's, the indexing states are on solid financial ground.
A study by Policy Matters indicates that if Ohio businesses would have just paid the average during the past decade, the unemployment compensation fund would have received $1.7 billion.
The Internet boom of the '90s and a sizable surplus in the account going into the 2001 recession allowed lawmakers and former Gov. Bob Taft to delay any action, although the actuarial tables have been telling the tale of a fund going broke for some time.
According to a study for the Department of Job and Family Services by Wayne Vroman of the Urban Institute in Washington, D.C., the fund has been drained of $2 billion in excess dollars since December 2000.
Vroman outlines seven recommendations to Strickland and state lawmakers, including raising the taxable wage base next year.
Simulations run by Vroman indicate a $1,000 increase would generate $83 million, while $3,000 would bring in an additional $250 million.
At the same time, he recommends capping the maximum weekly benefit from 2009 through 2011, which would affect only one in four recipients and save $143 million.
The argument can be made that it was wise and fiscally prudent to let the funds lapse until the state was forced to borrow from the federal government.
There is hope that the feds will give the money to the state as a grant rather than a loan.
If this is not the case, however, the state eventually will have to pay interest on the borrowed money, and those dollars must come from the General Revenue Fund or the state's treasury. Strickland has twice cut spending because projected tax revenue has not met expectations, and a third cut is looming.
So the head-in-the-sand approach is not only dumb, but it's also expensive.
Vroman's report indicates the fund will be $1.1 billion in the red by the end of 2009 and $3 billion by 2013. If the state borrows those amounts, the interest payments alone could run in the tens, even hundreds, of millions.
Passing the buck
Now the federal government knows the solution. If the state doesn't repay the loans in two years, the United States will impose an automatic tax increase on Ohio businesses to get the money.
Perhaps Strickland and lawmakers want the federal government to be the fall guy.
Two years ago, before Strickland was elected, former Gov. Taft and the Republican majorities in the Ohio House and Senate thought about raising the taxable wage base to $9,500, but decided to take a pass.
Strickland is in a similar position today. He doesn't want to raise the wage base and face accusations that he increased taxes.
Democrats, poised to take control of the Ohio House for the first time in 14 years, want to run again in two-years on their no-new-taxes platform.
Republicans in the Ohio Senate have demonstrated they are loathe to fix the fund and incur the wrath of their patronage saints.
The timing works in ways for our elected officials. The federal government will probably not step in until January 2011 to impose a tax increase on businesses, or two months after the next statewide and legislative elections.
Sure, it would cost millions to borrow, accumulate interest payments and do nothing, but by doing anything else, what do Strickland and lawmakers have to lose other than their own elections?
Dennis J. Willard can be reached at 614-224-1613 or dwillard@thebeaconjournal.com.
COLUMBUS: The retired have Social Security.
Get the full article here.
Comments
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Posted 08:45 AM, 11/30/2008
I will tell you why the fund is broke. They give benefits to everybody, whether they deserve them or not. I had an employee who claimed I layed him off, when in reality he never lost an hours work. He filed a claim and collected several months of compensation before they finally cut him off after I filed an appeal. At the hearing that he didn't show up for, I asked whether any charges would be filed against him, the answer was no. They didn't even attempt to recover the money he ilegally recieved. Thats why the fund is broke, thousands more just like him.
akron, oh
Posted 10:10 AM, 11/30/2008
READ THE PD ON PLUSQUELLIC'S CONNECTION TO DIMORA AND RUSSO AND MAFIA FIGURE SAM LUCCARELI.
akron, oh
Posted 01:01 PM, 11/30/2008
Hey Jon when unemployment first contacted you about the claim why didnt you do something then? you had four weeks to dispute this? I myself won my claim and i now get 121.00 a week big deal when you got kids but hey something is better then nothing.
Posted 04:53 PM, 11/30/2008
There is always someone who will cheat, it is unfair to blame all unemployed for the sins of the few. Ohio is considered unfriendly to business's anyway, they never met a tax they did'nt like. In my home state of Washington, we had no state, county or city income taxes, but what we did have was an efficient government, remarkably free of corruption.
Posted 06:57 PM, 11/30/2008
Employers are not aware of other issues involving the fund. If a state fund is in the red, this impacts the credit which employers receive on the FUTA (Federal Unemployment Tax). The tax rate on the FUTA is 5.4% upto $7000 in wages per employee. However employer's get a credit to reduce it to .8%. If any state is not in surplus then the employer loses the credit and pays up to $378 per employee instead of $56. Ask you local senator about that.
