Georgia’s fund that sends checks to the unemployed is nearly empty, and legislation in the General Assembly won’t refill it. And the state may take money from Medicaid and job-creating budgets just to cover the fund’s $24 million interest payment due in October.
State officials said this week that the legislation, pushed heavily by the tax-averse business community, won’t return the unemployment insurance trust fund to solvency. So far, the state has borrowed $672 million from Washington to pay tens of thousands of unemployed Georgians. And the tally rises daily.
More than 191,000 Georgians -- one of every three jobless people in the state -- received unemployment insurance payments last week, according to the Labor Department. The average payment is $269 per week. Labor officials say all jobless recipients will be paid, regardless of the state’s depleted trust fund.
The recession's double-digit unemployment, combined with insufficient tax contributions from employers, depleted the trust fund. Georgia’s wounds, though, are self-inflicted after the state halted payments into the fund by most employers more than a decade ago.
House Bill 292 would kick a final decision to restore the fund down the road. It would also reduce the unemployment tax businesses are supposed to pay beginning next year.
The bill's supporters argue that higher taxes during an economic downturn will stifle recovery. Meantime, they'll expect a healthier economy to boost hiring, reduce business liability and whittle away the huge tab owed Washington.
“This legislation buys us a year’s time to come up with a long-term plan best for Georgia,” Labor Commissioner Mark Butler said.
The Georgia Budget and Policy Institute opposes the legislation that has passed the House.
“Nobody wants to advocate for raising taxes significantly on employers when the economy is still recovering from recession,” said Clare Richie, a senior policy analyst with the nonpartisan research group. But “the legislation doesn’t really make any significant changes that would really have any impact on long-term solvency.”
In 1999, Georgia possessed a flush $2 billion trust fund, so Democrats and Republicans suspended payroll taxes to fund unemployment insurance for most state employers.
The fund dipped to $703 million by late 2003. “Triggers” established to rebuild the fund by raising the state payroll tax, were suppressed time and again by the Legislature. The fund ran dry in 2009.
“Obviously, this recession is longer and unemployment is higher than anticipated, but if we had that $2 billion we would’ve been in a lot better shape,” Richie said.
Georgia, like many states, sought emergency assistance from Washington in December 2009 to pay the jobless. Congress helped the states -- to the tune of $45 billion and rising -- but expects to be repaid.
The state's first interest payment, $24 million, is due in October. About $18 million of that could ultimately come from the state's Medicaid fund, which provides health care for low-income Georgians. The remainder could be pulled from the Labor Department’s $35 million budget, replacing money set aside to help Georgians get back to work.
President Barack Obama, though, has offered to suspend interest payments until 2014 if states agree to increase unemployment taxes that year.
“We would certainly support an extension of the time for the interest-free loan, but the price is a little rich right now for what the [president] is offering,” said Roy Bowen, president of the Georgia Traditional Manufacturers Association. “It would amount to a huge tax increase.”
Manufacturers, politicians and labor officials say Obama’s plan will buy time for the economy to rebound and to figure out how to restock the trust fund. By law, Georgia must raise employer taxes next year to rebuild the fund.
The state’s unemployment tax math is complicated. Basically, a company pays taxes on the first $8,500 of an employee’s salary. The base rates vary -- depending on how many workers a company lays off -- from .025 percent to 5.4 percent.
Georgia’s average tax rate: 1.85 percent, which translates into $23,588 a year for a 150-employee company.
Under current law, employers pay a 35 percent increase in the base tax rate to keep the trust fund solvent. Triggers for the insolvent fund, set to go off next year, could raise the rate by 100 percent. HB 292, though, would limit the increase to no more than half that amount.
Jim Jones, vice president at Tucker-based Dixie Industrial Finishing, expects his state unemployment tax bill to rise from $40,000 to $70,000 next year. Dixie employed 87 people to apply zinc plating to lawn mowers and brake calipers before the recession hit in 2008. The downturn cost 31 Dixie workers their jobs.
“What will the increase do to manufacturers and their ability to make decisions on hiring?" asked Jones, whose company has recently hired a half-dozen employees. "Will they continue to invest here or go off-shore?”
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