Georgia’s unemployment trust fund is in the red. Since the end of 2009, the state has amassed a $635 million debt to the federal government so that it could provide unemployment benefits to Georgia’s growing number of laid-off workers.
Georgia’s first interest payment of $24 million is due this fall. Already cash-strapped, Georgia’s best option to make this interest payment, repay its loan and avoid federal tax increases on employers is federal relief. A poor alternative would be redirecting state funds from critical services such as education, health care or public safety in order to pay back the loan.
The unemployment trust fund is used to make weekly payments to eligible workers who are laid off due to no fault of their own. Employers contribute to the trust fund through federal and state unemployment insurance, or UI, taxes. These contributions are used to build up the trust fund during strong economic times, creating a reserve that can be used to make payments during periods of high unemployment.
The severity and length of the recent recession placed an unforeseen strain on Georgia’s trust fund; yet, it’s not the sole cause behind the state’s need to borrow federal funds. Long periods of employer tax breaks depleted Georgia’s trust fund.
The federal UI tax has been stable at about $56 per employee per year. However, Georgia policymakers repeatedly have cut the state UI tax or suppressed tax increases during the past two decades.
The largest employer tax break came during the 2000-03 “UI tax holiday” during which most of Georgia’s employers paid no state UI taxes and the reserve fund dropped by $1.3 billion. Since 2004, even during strong economic times, legislation suppressed increases to employer contributions needed to build up the reserves.
Georgia’s insolvency is not a spending issue. Georgia pays lower unemployment benefits than the national average ($269 per week compared to the national average of $296 per week), and for a shorter period of time, roughly 15 weeks. Even more so, only about one in three unemployed workers receives UI benefits. Despite the fact that unemployment payments are oftentimes half of the average employee’s wages, they sustain consumer demand during economic downturns and as the worker looks for another job.
Federal relief, as outlined in the Unemployment Insurance Solvency Act of 2011, would provide a two-year suspension of interest payments, and a two-year suspension of automatic federal employer tax increases. It also would allow for states to develop a plan to return to solvency in exchange for partial reduction in the state’s loan.
Without federal relief, Georgia will need to repay hundreds of millions of dollars to the federal government this fall. Failure to repay $24 million in interest would automatically increase employer federal UI taxes from $56 to $434 per employee starting in 2012. Failure to repay the $635 million loan would result in a $21 increase per employee per year until the loan is repaid.
Given the two options — federal relief or repayment in full — and considering Georgia’s current budget troubles, it seems obvious that federal relief is the best option for Georgia’s future.
Clare S. Richie is senior policy analyst for the Georgia Budget & Policy Institute.
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