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

baylor@cppp.org

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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