2010-11

Calling on State Legislatures to Support Changes to Employment Security System Funding

Senator Luz “Lucy” Arce Ferrer (PR)

WHEREAS,State Legislators recognize the many challenges facing the nation as the economy and labor market change. In the states, differing circumstances reflect a changing economic base, prolonged higher unemployment, unique demographic trends, and limitations on available resources. Sate employment security, unemployment and labor market information systems must figure prominently in efforts to serve the workers and businesses of 21st century economy; and

WHEREAS, the National Hispanic Caucus of States legislators (NHCSL) believes that changes are needed in employment security financing to provide a stable system that will be able to address economic and competitive challenges; and

WHEREAS, NHCSL supports the decisions aimed at reaching consensus among workers, employers, and state and federal entities to develop comprehensive recommendations for Congress to address the following priorities and inadequacies in the current system; and

WHEREAS, state governments collect payroll taxes from employers to pay for unemployment insurance benefits. These taxes are deposited into state unemployment insurance trust fund accounts in the federal Unemployment Trust Fund where each state, plus the District of Columbia, Puerto Rico and the U.S. Virgin Islands, has its own account. Each state may borrow from the federal account to cover benefits during economic downturn. During the current recession many states have borrowed to cover benefits. These loans must be repaid with interest unless repaid within a short period established in federal law. If states are unable to repay the loan with interest, an automatic gradual increase of the federal tax will be imposed on the state’s employers. More than half of the states have already borrowed and the U.S. Department of Labor projections show that up to 40 states are expected to be borrowing by the end of 2010. NHCSL is encouraged by recent federal action that provided a waiver of interest payments to states with outstanding federal unemployment loans. However, the waiver expires on December 31, 2010; and

WHEREAS, extended benefits are paid by state unemployment insurance agencies from state unemployment accounts but reimbursed at 50 percent from the extended unemployment account. Congress provided extended benefits on a 100 percent federally funded basis several times as a result of the recent recession; and

WHEREAS, under the framework of the system outlined in the Federal Unemployment Tax Act (FUTA), states collect a state payroll tax to finance unemployment benefits. The federal treasury holds the collected taxes in “trust” accounts, but these accounts are included in the federal unified budget; and

WHEREAS,the IRS collects a federal payroll tax from employers to provide funds for administration of both the federal and state unemployment insurance systems. Rising unemployment has resulted in increased state administrative costs and workforce challenges in administering and monitoring the regular, and especially, the extended benefits programs, which have not been sufficiently funded by the federal government. In addition, state unemployment insurance programs have been chronically underfunded in staffing and technology.; and

THEREFORE, BE IT RESOLVED, by the National Hispanic Caucus of State Legislators, to fully support an extension of benefits fully funded by the federal government during recessions as a means of stabilizing the economy; and

BE IT FURTHER RESOLVED, that NHCSL urges the development of more effective triggers for the federal-state extended benefit programs to improve the program’s responsiveness during recessions and decrease the need for separate and additional emergency extended benefit programs in periods of high unemployment; and

BE IT FURTHER RESOLVED, NHCSL urges the federal government to move the dedicated FUTA trust fund from the discretionary side to the mandatory side of the federal budget and not use the funds to offset the federal budget deficit; and

BE IT FURTHER RESOLVED,NHCSL urges Congress to adequately fund state administrative functions, and continue the state legislative role in the appropriation of administrative funds.

Sponsored By: Senator Luz “Lucy” Arce Ferrer (PR).

THIS RESOLUTION WAS ADOPTED BY NHCSL AND RATIFIED AT ITS ANNUAL MEETING HELD IN SAN ANTONIO, TEXAS NOVEMBER 13TH, 2010.