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Dwindling unemployment fund a ‘huge issue’ to business groups

August 4, 2020
Originally posted on Greater Baton Rouge Business Report

Business groups are increasingly nervous about what could happen if the state’s Unemployment Compensation Trust Fund runs out of money, which, at this point, appears to be a real possibility.

“This is a huge, huge issue,” Louisiana Association of Business and Industry President and CEO Stephen Waguespack says. “This is really our number one priority, our top ask, right now.”

Louisiana’s trust fund had nearly $1.1 billion in it at the beginning of the year. Since the economic crisis triggered by the pandemic, however, the state’s unemployment claims have burned through more than $850 million of that amount. At that rate, the fund will be insolvent by mid-September, just a little more than a month away.

But state law protects the fund from actually running out. Once the balance in the fund drops to $100 million, benefits go down and the tax on businesses that support the fund starts to go up. That surcharge could ultimately amount to as much as 30% of a company’s taxable payroll over and above what they’re required to pay annually into the fund anyway.

Though the tax increase would not go into effect until January, such a hit would be a blow to the state’s economy, Waguespack says.

Members of the Committee of 100 for Economic Development, the state’s business roundtable, are also “very concerned,” according to the group’s executive director, Michael Olivier.

However, he is optimistic that Congress and state leaders will find a solution to help bail out Louisiana and nearly 20 other states, many of which were in worse shape than Louisiana going into the crisis and are already insolvent.

“Anticipation that the feds are going to do something about that remains,” Olivier says. “The state is in the process of making an application through the federal government. There is a path forward and there is a loan from the government, however low interest it will be, but I think the federal government will have to step in.”

But Republicans and Democrats on Capitol Hill remain far apart on what the next coronavirus relief package will include. Some members are disinclined to shore up the unemployment trust fund, given the trillions in relief they’ve already provided to businesses, unemployed workers, and state and local governments.

“We have probably been asked for over $10 trillion in various assistance programs,” U.S. Rep. Garret Graves, R-Baton Rouge, says. “Some make sense and others are selfish. We are going to work to prioritize. In some cases, those priorities cannot include paying two-thirds of those who lost their job more money to not work than when they were working.”

Graves acknowledges that businesses will ultimately be the ones forced to shore up the trust fund if it approaches insolvency before a solution is found, something that “no one wants to happen,” he says.

“But you can’t have this perverse incentive on unemployment insurance, which makes more people go to and stay on unemployment, which makes the state fund go bankrupt faster and waste billions in federal funds that could go to higher priorities,” he says. “You need to fix the policy. We need to help people get back to work and get health insurance. We have already provided the state billions. They can look to some of those sources as well.”

The state is looking to those sources, Commissioner of Administration Jay Dardenne says. It’s also considering borrowing federal money, which is available at no interest, provided the loan is repaid by the end of the year.

“That would be very difficult to do,” Dardenne says. “But it’s still an option.”

The state is trying to figure out what other options are available and when, based on state law, it will have to start a process of hearings and notifications that the fund is bordering on insolvency.

Waguespack says LABI and the Edwards administration are committed to working together, in a relatively rare moment of unity, to find a solution.

“I don’t think anyone is in bad faith on this,” he says. “The sad thing is before this crisis, the business community and government had worked to fill this fund and shore it up and we were well-regarded around the country for being so solvent. Now, it’s gone.”