More than a decade after the Great Recession, Ohio’s unemployment compensation fund doesn’t have enough to weather the next economic downturn — a long-standing fact that took on increased urgency with the sharp drop in the stock market.
Ohio’s fund has long been deemed insolvent by federal guidelines because it has less than one year of benefit reserves.
In fact, Ohio has only a third of the $3 billion needed to help laid-off workers make ends meet while looking for new jobs if another recession hits, the fifth-worst solvency rate in the nation, according to the U.S. Department of Labor’s most recent State Unemployment Insurance Trust Fund Solvency Report.
Only California, Massachusetts, Texas and the Virgin Islands ranked lower.
Ohio lawmakers have tried repeatedly, and failed, to shore up the state’s trust fund. Most recently, unable to come up with a solution, the legislature imposed a two-year increase in the taxable wage base paid by employers and a freeze on benefits paid to jobless workers.
The short-term fix expired Jan. 1, with no permanent solution in sight and Republican leaders seemingly further apart than ever in the GOP-dominated legislature.
Sen. Bob Peterson, a Sabina Republican who has worked on the issue, said, “It’s been challenging because it pits (business and labor) against each other.” To increase fund revenue, employers would have to pay higher taxes or workers would have to take a reduction in benefits or some combination of the two.
Peterson said he has had preliminary discussions with interested parties as “we try to find a balanced approach.”
But Republican House Speaker Larry Householder questioned whether the state needs to act at all. The House last year rejected a Senate proposal to extend the temporary tax increase and benefits freeze for another three years.
“If there isn’t enough money in the fund to pay claims, the state can borrow from the feds at a rate of less than 1%. Does it make sense to take money out of the economy and place it in storage with Ohio government or to borrow at an almost negligible rate if claims exceed the fund reserves?” Householder said.
Under government guidelines, the fund is supposed to be self-sustained through payroll taxes paid by employers. According to federal regulators, Ohio hasn’t met minimum safe levels since 1974. Twenty-nine states have reached solvency in preparation for the next economic downturn and a spike in the need for benefits.
“Without the stop-gap measure, our trust fund is at greater risk of going insolvent,” said Kevin Shimp of the Ohio Chamber of Commerce. “Right now, the fund is capable of paying out four months of benefits during a recession. The goal is one year.”
Labor leaders also want a solvent fund but say the burden falls to employers. “I wasn’t crazy about the freeze, so it’s helpful” to have it lifted, said Ohio AFL-CIO President Tim Burga.
“We’ve been underfunded way too long,” he said. “Our position has been steady. Compared to neighboring states, businesses pay a lower tax rate, and fewer in Ohio qualify for benefits and benefits are lower.”
Legislative efforts to fix the system go back to 2008, when shortly after the recession began, the fund was depleted and the state was forced to borrow $3.4 billion from the federal government to pay benefits. It took nearly a decade to pay off the debt and triggered a temporary increase in federal unemployment taxes for Ohio employers.
Some believe a federal fix is needed, and President Donald Trump’s new budget proposal includes a provision to require higher unemployment taxes for employers in states with less than six months of reserves, like Ohio.
Trump made similar proposals in his past two budgets, but Congress rejected the plan both times.
Peterson said Ohio is lucky that “the economy is strong and revenues are strong, and the (unemployment compensation trust) fund has been running at a surplus.” But he acknowledged that also makes it the ideal time to build up reserves.
Under the current system, employers fund the trust by paying a tax on the first $9,000 of an employee’s wages. The revenues provide up to 26 weeks of benefits to qualified workers who lose their job.
Even without a recession, state officials project the trust fund, which has grown to $1.2 billion in recent months, will be broke by 2025.