Fixing the workers’ safety net

Added September 1st, 2011 by Peter Ruark | Email This Entry Email This Entry
Peter Ruark

Last week marked the culmination of the Michigan Legislature’s ongoing decision to do nothing and leave $138.7 million in federal funds on the table. That money was to be used to shore up Michigan’s Unemployment Insurance trust fund.

As the League discussed in a recent blog, the state had three years to make certain modernizations to its program to become eligible for the funds. Although the House passed legislation enabling these modernizations in 2009, neither the current House nor Senate took up a similar bill sponsored by Rep. Jim Ananich, D-Flint, before last week’s deadline.

As a new paper by the National Employment Law Project explains, the fund has borrowed $3.2 billion to finance state benefit payments, and owes a federal interest payment of $117 million at the end of September 2011. Receiving the federal money would not have solved the problem by any means, but it would have been a start.

The paper traces much of the problem to several UI tax cuts for businesses since the early 1990s, most taking place when the economy was strong. Because of the resulting structural imbalance, when unemployment rises, benefit payments exceed trust fund revenues as is to be expected, but there are not adequate reserves to prevent the fund from becoming depleted. The state then must borrow from the federal government to keep the UI benefits coming to unemployed workers.

Earlier this year, Michigan, in response to the trust fund debt, lowered the maximum number of weeks that an unemployed worker can receive Basic UI from 26 weeks to 20 — something that had not been done by any other state up to that point. The NELP paper shows how this and other cuts to worker benefits will hurt workers, local economies and businesses without solving the insolvency problem. It concludes that the only way to get a handle on the trust fund insolvency is to raise revenues through increased UI taxes on employers.

We sometimes hear that raising taxes is a “jobs killer.”  Not true!  One must consider the consequences of Michigan going further in debt, or of an increased number of workers not receiving the temporary benefits they need while they look for work. NELP lays out a convincing case for why the past two decades’ UI tax cuts during good times were misguided, and why the revenue loss needs to be stemmed by increasing the taxes to workable levels.

It’s an argument the Legislature would do well to at least consider.

— Peter Ruark

no comments

Leave a Reply