BILLIONS OF DOLLARS are going to be pumped into the state’s unemployment insurance trust fund, but there is no guarantee the money will solve the fund’s problems.
A special legislative commission set up to find solutions to the long-term problems that have plagued the fund was unable to come to any consensus last week, which means the same issues that undermined the fund during the pandemic are likely to recur at some point down the road.
“Since we haven’t fixed anything, there’s no reason to think we’re going to have a different outcome. The economics and the politics suggest we’re going to end up in the same place, which is to say we’ll be underfunding moving forward because we weren’t able to agree on changes,” said Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University and a member of the unemployment insurance commission.
As Horowitz explained on The Codcast, the unemployment insurance trust fund was a New Deal initiative to provide some level of financial support for people who lose their jobs through no fault of their own.
The financial support is funded through assessments on businesses. Businesses say the assessments are taxes on them, but Horowitz says most economists believe workers actually foot the bill because companies account for the assessments by paying their workers slightly less.
The key to a sound unemployment insurance system is to set aside money from employers in good times so it can be spent in times of high unemployment. Horowitz said the system is designed to address any looming shortfalls automatically, by raising assessments on businesses if the balance in the fund dips too low.
“For 15 years, it never happened. The trust fund was low but legislators stepped in to say, ‘You know what, let’s not raises taxes, now’s not a great time to raise taxes,’” Horowitz said. “They just never did it.”
There’s also a technical problem with the way money is collected. Horowitz said businesses pay assessments on only the first $15,000 of an employee’s salary, not the full paycheck. That means as salaries rise, and unemployment benefits rise in concert, the assessments remain static, so the gap between collections and payouts widens.
The commission was set up to recommend solutions for these and other problems to the Legislature. But after 11 meetings over the course of a year, the commission couldn’t muster the necessary two-thirds support for any major solutions.
The short-term fix is fairly simple – the state directed $500 million in federal COVID relief money into the trust fund along with $2.6 billion in bond money, with businesses paying the interest on the bonds.
But none of the major underlying problems facing the trust fund are fixed, according to Horowitz. He said the failure to address those problems probably was unavoidable, given the fairly even split between business and union members on the commission.
He said most of the commission members echoed the views of their constituencies and the inability to meet in private because of the state’s Open Meeting Law meant the members never could compromise.
“We really weren’t that far apart, but we couldn’t do that,” said Horowitz. “People are in character and they’re caught up in shorter-term things and everything happens publicly and this makes horse-trading impossible.”