State’s jobless-aid kitty on skinny side should a recession sweep in
Posted on Thursday, July 3, 2008
At the peak of a recession, Arkansas’ unemployment benefits reserves would last less than 18 weeks, according to an advocacy group. The National Employment Law Project rated Arkansas one of 14 states that could become insolvent in that scenario.
Thirty-three states are at risk of running out in less than a year unless they’re replenished as required under federal law, the federal Department of Labor announced Wednesday. The Arkansas unemployment rate was 5. 1 percent in May, up from 4. 7 in April, while the U. S. rate rose 0. 5 percentage point in May to 5. 5 percent.
If joblessness continues to increase and employers’ taxes aren’t raised and benefits aren’t decreased, then the trust fund could become insolvent.
The ability for the state to pay its unemployment benefits is only as good as its reserves, or trust fund. If the trust fund runs low, steps would be needed to put more money into it.
The governor could call a special session of the Legislature. Otherwise, the state would have to borrow from the federal government.
The Legislature could cut benefits in lieu of raising taxes to pay back the loan as well as bring the fund back to solvency. The most likely scenario would be a combination of the two steps, experts say.
Hugh Havens, the former assistant director for unemployment insurance in Arkansas, and others said there is almost no danger of benefits suddenly ending.
Havens retired last week after several decades at the Department of Workforce Services. The state currently projects sufficiency through 2010, he said.
But “the bottom could fall out tomorrow and screw those projections to pieces,” he said. The state pays out the highest percentage of unemployment benefits in the South, according to the group. It pays benefits to nearly 42 percent of the total number of jobless Arkansans who qualify, the average payout being about $ 243 a week, the group said. The percentage is above the national average of 35 percent and well over the average among the 16 Southern states: 29 percent.
Rick McHugh, a spokesman for the National Employment Law Project, said, “Basically, Arkansas has a pretty decent unemployment program, especially for the South. The financing end of it has been soft for several years and, you know, I’m sure what they’re probably hoping the economy doesn’t get too bad and they can skate through without raising taxes.” But economists don’t see the U. S. economy — which is not in a recession but has been flirting with one — getting better anytime soon.
Havens said the last time the trust fund was exhausted was in the 1980 s.
“We didn’t miss a beat,” he said. “But we had to borrow money.” The National Employment Law Project is advocating change. One potential remedy could be to increase the taxable wage base that employers pay on their employees’ salaries.
Many states haven’t kept pace with inflation.
In California, for example, companies pay unemployment taxes on a worker’s first $ 7, 000, a figure that hasn’t changed since 1984. But the benefits California pays out have risen considerably since then.
But McHugh said Arkansas is one a few states that has an advisory council that guides the Department of Work Force Services in deciding how to shape legislation. The advisory council is made up of four people in management, four in labor and one member of the public.
The Legislature last raised the taxable base in 2004, to $ 10, 000 from $ 9, 000. Now, according to the federal Department of Labor, each employer pays more than $ 229 per employee, on average.
But that still isn’t enough.
“It’s been on the marginal end for several years, but it’s never gone below zero,” said Daniel Woods, a member of the council and a retired human-resources manager.
Ron Calkins, the acting assistant director for unemployment insurance, said that anything can happen to skew projections for the future. On average, unemployment benefits cover about half of an employee’s average weekly wage. In June, the maximum payment jumped from $ 409 to $ 431.
Mark Martin, a Fayetteville lawyer and a member on the labor side of the council, said he’s confident in the council’s ability to solve potential problems.
“Having tracked this for many years to me it’s something that is solvable,” Martin said. “I don’t expect everything to go wrong and nothing to go right.” Information for this article was provided by Andrew Welsh-Huggins of The Associated Press.
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