Senate Committee on Economic Development Modernizing Texas’ Unemployment Insurance System Senate Committee on Economic Development March 30, 2009 Don Baylor, Jr. Senior Policy Analyst

Texas Unemployment is Soaring Up 52% since beginning of recession 102,000 jobs lost in Jan & Feb 2009; worst 2 monthly job losses on record Unemployment rate may not peak until 2 years after recession ends TX ranks 50 th in UI recipiency rate (TX: ~22%; US avg: 39%) Sources: Texas Workforce Commission, CPPP Analysis ,000 more Texans unemployed since December 2007

Things to Remember about UI Only eligible if lost job through “no fault of their own” and must actively search for work UI Claimants receive less than ½ of previous salary (35% of average weekly wage) Duration=26 weeks (Avg TX duration=13 weeks; U.S. average =15 weeks.) Current UI eligibility disadvantages working mothers

Unemployment Insurance Modernization Act/ARRA Provides $7B in incentive funding for states to modernize UI eligibility Potential TX Share: $555.7M To draw down funds, states must make policy changes (if not already enacted) Changes must be enacted by 2011 –Implementation can be delayed up to one year after certification (Summer 2010) 4

Why UIMA Reforms Are Good for the Texas Economy Stimulates Consumer Spending: $1 in UI Benefits ~ $2.50 in Econ. Activity ($1.2B over 7+ years) Lessens demand on state-funded social services (CHIP, Medicaid, TANF) Would reduce Deficit Tax by nearly 70%, and average tax rate by 10-20% in

Employer Deficit Tax will be Levied to Rebuild Trust Fund 6 Deficit tax rate: 1.09% Deficit tax rate: 0.34% Deficit tax rate: 1.09% Deficit tax rate: 0.34% Source: Texas Workforce Commission, CPPP Analysis

UI Reforms to Draw Down $555M Best Reform Package Alternate Base Period Comparable Work Search (Part-time) Compelling Family Reasons Conforming Legislation: CSHB 2623/CSSB 1569 Source: Texas Workforce Commission, CPPP Analysis 7

Alternate Base Period Legacy of manual wage records 20 states use ABP (GA, OK, NM, VA) Passed TX House (2007) Additional UI Benefits per year (~$40M) Required to access any federal funds ($185M) 2Q 08 W 3Q 08 W 4Q 08 W 1Q 09 W 2Q 09 (W) Filing 1Q 08 W 2Q 08 W 3Q 08 W 4Q 08 W 1Q 09 W Lag 2Q 09 (W) Filing Standard Base Period Alternate Base Period 8

Comparable Work Search (Part-Time) Many workers are limited to part-time work due to compelling reasons, especially working mothers “Full-time” Work Search Requirement NOT in Statute or Rule Additional UI Benefits/year ($15-27M) 9

Compelling Family Reasons for Leaving Work Current Law Trailing Spouse –No waiting period for military spouses; 6 wk waiting period for civilians Family Illness –Available for spouse, minor child Domestic Violence –Must present either police report, protective order, or physician’s note Proposed Changes Trailing Spouse –eliminate 6 week waiting period for civilians Family Illness –include parents as part of “immediate family” Domestic Violence –Can provide other forms of documentation (e.g. attorney, shelter worker) (UI DV denials are mostly due to documentation barriers) Additional UI Benefits/year ~ $3M/year

Unemployment Compensation Trust Fund: The Basics Taxable Wages (first $9,000 per worker) Ceiling = 2% of Taxable Wages (~$1.7B) –If above, Employer Rebates are issued Floor = 1% of Taxable Wages (~$860M) –If below, Deficit Tax imposed 2008: $1.16B in Employer Contributions –$1.35B in UI Benefits 2009 Claims at least 2x higher than 2008 Oct. 1 Projection: $812M below Floor –No TEF/SDF Transfers from Holding Fund 11

Why the Trust Fund is Insolvent Tx ranks 47 th in UI tax rates on total wages Low ceiling prevents buildup of reserves “Backwards Financing” Model Issued $1.4B in bonds in 2003 Will need to borrow $2-$4B to keep Trust Fund afloat ( ) 12 Source: Texas Workforce Commission, CPPP Analysis

Deficit Spending a Key Driver of UI Tax Increases 13 *projected Source: Texas Workforce Commission & Texas Comptroller, CPPP Analysis

Texas Commission on Unemployment Insurance Financing Long-Term Solvency Access Eligibility Administrative Efficiency Technology Impact of UIMA Reforms

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