Unemployment Trust Fund Balancing Act

As it must every year, the Revenue Estimating Conference (REC) met last week to estimate what Louisiana’s unemployment compensation (UC) trust fund balance will be next year. Whenever the REC projects that the fund balance will fall below statutorily defined levels, the Louisiana Workforce Commission (LWC) is compelled by law to raise employer taxes and to lower UC benefits for the following year.

The REC adopted the LWC’s estimate of $809.4 million for August 31, 2011. This is good news for both businesses and the unemployed because it allows taxes and benefits to remain unchanged for next year. Frankly, there was concern when this year began that with UC claims so high, higher taxes and lower benefits would have to be imposed in 2011. Fortunately, after last January, the number of weekly claims fell below mid-2009 levels, which has allowed Louisiana’s UC fund to better absorb their impact.

Currently, at $975.9 million, Louisiana has the second largest UC fund in the country. Twenty-nine states actually have negative fund balances and are in debt to the federal UC fund for monies they have borrowed to pay benefits to their unemployed. Louisiana has a healthy UC fund in spite of the substantial amount of benefits paid, that occurred in the wake of the hurricanes that hit our state in 2005 and 2008, and despite the significant growth in UC claims during 2009.

It is no accident that our UC fund is healthier than those in almost every other state. Our fund’s strength derives from lessons learned during the recession of the 1980s, which was driven by the collapse of the oil and gas industry in Louisiana.

The hit to our state’s UC fund in the early ‘80s was immediate and devastating, bankrupting it in less than a year. The Legislature was forced to raise employer taxes and lower claimant benefits in an effort to slow the hemorrhage. The state had to borrow money from the federal government to pay benefits to the jobless. Within five years, Louisiana owed over $700 million to the federal UC fund.

The federal loans came with high interest charges and extra federal taxes, and Louisiana’s employers struggled under their weight. The business and labor communities eventually joined together in support of legislation to authorize a bond issue to pay off the federal debt. Employers paid a special assessment to retire the bonds, which was accomplished more quickly than anticipated.

To prevent a recurrence of the insolvency that cost employers so much back then, a system of “triggers” has been established relative to our UC fund’s balance. In times of high unemployment, as the fund declines, tax increases and benefit reductions are triggered at certain levels to ensure fund adequacy.

The fact that Louisiana’s UC fund has weathered the current economic decline and appears up to the challenge in the coming year is certainly something to be proud of. It should give workers and employers comfort that it will be there for them during these tough economic times.

However, uncertainties loom on the horizon, not the least of which is the effect of the oil and gas drilling moratorium on Louisiana’s economy in the months ahead. Business and labor must remain diligent and ready to work together to address any threat to the solvency of Louisiana’s UC fund. It is a lifeline for our workers and their families during these difficult times, and its solvency is of paramount importance to all of us.

Dan Juneau is President of the Louisiana Association of Business and Industry. Jim Patterson, LABI’s Vice President of Governmental Relations and Employee Relations Council Director, contributed to this column.



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