joint committee hearing: house committee on technology, economic development & workforce and the...
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Modernizing Texas’ Unemployment Insurance System
Joint Committee Hearing: House Committee on Joint Committee Hearing: House Committee on Technology, Technology,
Economic Development & WorkforceEconomic Development & Workforceand the Committee on Business & Industryand the Committee on Business & Industry
May 17, 2010
Don Baylor, Jr.Senior Policy Analyst
Texas Unemployment Remains Elevated:
Rate up 86% since beginning of recession• As of April 26, 2010,
464,000 UI claimants (all programs)
• Rate expected to remain high into 2012 as “hidden” job seekers re/enter labor market
• Large rise in long-term unemployment – Over 40% unemployed for 6 months or more
• Initial Claims Steady since beg. of 2010
Sources: Texas Workforce Commission, CPPP Analysis.
2
Texas Unemployment Rate During Current RecessionDecember 2007 - March 2010
8.2%
4.4%4%
5%
6%
7%
8%
9%
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
A Few Snapshots of Texas UI Claims
UI Claims Comparison July 2009 & April 2010
Program July 18, 2009 April 26, 2010
Regular UI
283,208 201,082
EUC 121,214 239,327
EB 18,200 23,382
Total Claims
422,622 463,791
Source: Texas Workforce Commission, August 2009 & April 2010
UI Federal Programs
UI Federal Programs through April 17, 2010
$25 Weekly Federal
Additional Compensation
Payments
Emergency Unemployment Compensation
(EUC)
Extended Benefits
Total
Number of Claims
N/A 1,017,593 114,294 1,131,887
Total Pay Outs
$621.3M $3.3B $359.2M $4.3B
Source: Texas Workforce Commission, April 2010
Unemployment Insurance Eligibility: The Basics
• Recent Wages
• “Through No Fault of Their Own”
• To maintain eligibility, must actively search for work & accept suitable work
• Average Weekly Benefit = $320/week (covers about 37% of prior wages)
• Average Duration = 17.4 weeks
5
Unemployment Insurance Modernization Act/ARRA
• Provides $7B in incentive funding for states to modernize UI eligibility
• Potential TX Share: $555.7M• To draw down funds, states must make
policy changes (if not already enacted)• Changes must be enacted by Aug.
2011; implementation can be delayed up to 1 year beyond enactment
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Why UIMA Reforms Are Good for the Texas Economy
• Stimulates Consumer Spending: $1 in UI Benefits = $2.15 in Econ. Activity ($1.2B)
• Lessens demand on state-funded social services (CHIP, Medicaid, TANF)
• Would reduce employer UI taxes by ~$500M in 2011-13 ($1,000/employer)
7
How is Texas Doing Under Current UI System?
Texas vs. U.S.: Unemployment Rate and UI Recipiency Rate
U.S. Texas
Unemployment Rate 9.7% 8.2%
Recipiency Rate without Federal Programs
35% 22.5%
Ranked 46th
Recipiency Rate All Programs 67% 49%
Ranked 49thSource: Texas Workforce Commission, Labor Market and Career Information Tracer, Local
Area Unemployment Statistics; and U.S. Department of Labor UI Data Summary, United States, Fourth Quarter 2009
Major Texas Metros.: UI Recipiency Rate, February 2010
County Recipiency Rate without Federal Programs
Recipiency Rate All Programs
Bexar 21.5% 43.5%
Dallas 24.1% 59.1%
El Paso 20.9% 48.2%
Harris 24.1% 52%
Hidalgo 22.5% 47.2%
Lubbock 17.6% 32.4%
Potter 21.4% 44.3%
Tarrant 23.3% 53.9%
Travis 22.1% 48.7%
Williamson 22.1% 46.8%Source: Texas Workforce Commission (TWC), Labor Market and Career Information Tracer, Local Area Unemployment Statistics; TWC Snapshot of UI Filers February 9, 2010; and U.S.
Department of Labor UI Data Summary, United States, Fourth Quarter 2009
Select Texas Counties With the Lowest UI Recipiency Rates Compared to State Average, February 2010 Snapshot
County Recipiency Rate without Federal Programs
Recipiency Rate All Programs
Brazos 13.7% 28%
Comanche 12.9% 33.6%
Coryell 15.7% 31.7%
Hamilton 18.2% 40.2%
Lubbock 17.6% 32.4%
Mills 9.3% 24.7%
Nacogdoches 17.4% 35.9%
Shackelford 17.1% 30.5%
Texas 22.5% 49.1%Source: Texas Workforce Commission (TWC), Labor Market and Career Information Tracer, Local Area Unemployment Statistics; TWC Snapshot of UI Filers February 9, 2010; and U.S.
Department of Labor UI Data Summary, United States, Fourth Quarter 2009
Unemployment Compensation Trust Fund: The Basics
• Taxable Wages (first $9,000 per worker)• Ceiling = 2% of Taxable Wages (~$1.7B)
– If above, Employer Rebates are issued
• Floor = 1% of Taxable Wages ($848M)– If below, Deficit Tax authorized
• FY2009: $1.09B in Employer Contributions– $3.47B in UI Benefits
• Due to insolvency Texas Enterprise Fund & Skills Development Fund received no transfers for FY2010
• Oct. 1, 2010 Projection: $2.510B below Floor– No TEF/SDF Transfers from Holding Fund
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Why the Trust Fund is Insolvent• Taxable wage
base not suitable• Of the 13 states
likely to remain solvent into 2010, 10 states have indexed taxable wage base
• Low ceiling prevents buildup of reserves
• Pay as you go financing does not stabilize economy
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Source: Texas Workforce Commission, CPPP Analysis
Taxable Wage Base Not Keeping Up With Total Covered Wage Growth in Texas (1990-2009)
$-
$100
$200
$300
$400
$500
$600
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
$ B
illio
ns
67% Growth
193% Growth
Gap between Total Wages and Taxable Wages has widened from 3:1 to 5:1
Trust Fund Reserves Not Adequate for Downturn
Source: Texas Workforce Commission, CPPP Analysis
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UI Trust Fund Not Prepared for Any Recession
-$3
-$2
-$1
$0
$1
$2
$3
$4
$5
$6
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
(p)
2011
(p)
2012
(p)
Fiscal Year
Tru
st F
un
d B
alan
ce (
in $
B)
Balance Needed for Solvency atHighest-*Ever* Payout Rate
Balance Needed for Solvency atHighest *Recent* Payout Rate
Statutory Ceiling on Balance
Actual Balance
Statutory Floor on Balance
Trust Fund Loans • 34 states and the Virgin Islands have
depleted their UI Trust Funds and are borrowing from the Federal Unemployment Account
• As of April 19, 2010, Texas had borrowed $2.1B ($976M=current balance) in federal trust fund loans.
• Total state trust fund borrowing nationwide = $41B (As of April 19, 2010)
Consequences of Insolvency
• “Pay as you Go” financing punishes smaller business during recession, doesn’t stabilize economy
• Benefits rise, covered employers fall
• Large % of Employer Taxes directed to debt obligations (instead of consumer economy)
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Recap & Recommendations
1. Enact suite of UI reforms to draw down $555.7M in 2011
– Decrease new employer taxes in 2011-13– Diminish borrowing costs– Stimulate economic activity
2. Chart a path to Trust Fund Solvency• Establish a long-term plan that moves toward
“forward-financing”• Stabilize funding for workforce & economic
development
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