BY STATE SENATOR LARRY TEAGUE –
LITTLE ROCK – The state’s unemployment insurance trust fund has recovered significantly and by the end of the year will not owe any money to the federal government, the governor announced.
A few years ago the state’s trust fund was in debt to the federal government for $360 million because the severe economic recession in 2008 and 2009 that caused so many people to lose work and file for unemployment. After the state fund was exhausted, it relied on federal subsidies to continue paying unemployment insurance to laid off workers.
When the trust fund operates at a deficit for two or more years, the costs to employers is greater, so the governor’s announcement is good news for Arkansas businesses.
He also announced that besides paying down our debt to the federal government, the trust fund was being built up to about $200 million for use in case the economy takes another downturn.
The legislature took steps to shore up the trust fund soon after it became evident that the economic slump of 2008 and 2009 would deplete it. Act 802 of 2009 increased the amount businesses paid into the fund by raising the threshold at which employers pay a tax into the fund. Previously they paid the tax on the first $10,000 of salary and Act 802 raised that to $12,000.
Act 861 of 2013 reduced benefits to laid off workers to generate savings of an estimated $60 million to $70 million a year.
The act trimmed benefits in several ways, including reducing payments to workers from 26 weeks to 25 weeks. Many workers who were out of work for longer than 25 weeks were eligible for extended benefits from a federal program that is separate from the state’s unemployment insurance fund.
Act 861 also held down expenses from the trust fund by freezing an index that previously had automatically raised benefits as average wages increased.
Elected officials had given serious thought to issuing bonds to cover the debt, and the legislature even authorized the governor to call a special election in the event the state’s political and business leaders chose to issue bonds.
However, in part because of resistance by business owners, bonds were never issued and Arkansas was spared the cost of paying fees and interest that bonds require.
A consequence of the depletion of the trust fund is that legislators learned that the state Department of Workforce Services had overpaid millions to workers who continued to receive unemployment even after they had found new jobs. Legislators directed that the payments be audited to prevent abuse and fraud.
The Department referred fraudulent cases to local prosecutors and 234 people were convicted while 25 saw their cases dismissed because they made restitution to the fund.
Arkansas was one of 35 states that relied on advances from the federal government because their state funds had been drawn down so much.
There are still eight states getting advances and 11 states still owe a total of $14 billion to the federal government. According to the governor’s office, California’s obligations represent about half of the total debt.