Joint Committee Hearing: House Committee on Technology, Economic Development & Workforce and the Committee on Business & Industry Modernizing Texas’ Unemployment Insurance System Joint Committee Hearing: House Committee on Technology, Economic Development & Workforce and the Committee on Business & Industry May 17, 2010 Don Baylor, Jr. Senior Policy Analyst

Texas Unemployment Remains Elevated: Rate up 86% since beginning of recession As of April 26, 2010, 464,000 UI claimants (all programs) Rate expected to remain high into 2012 as “hidden” job seekers re/enter labor market Large rise in long- term unemployment – Over 40% unemployed for 6 months or more Initial Claims Steady since beg. of 2010 Sources: Texas Workforce Commission, CPPP Analysis. 2

A Few Snapshots of Texas UI Claims UI Claims Comparison July 2009 & April 2010 ProgramJuly 18, 2009April 26, 2010 Regular UI 283,208201,082 EUC121,214239,327 EB18,20023,382 Total Claims 422,622463,791 Source: Texas Workforce Commission, August 2009 & April 2010

UI Federal Programs UI Federal Programs through April 17, 2010 $25 Weekly Federal Additional Compensation Payments Emergency Unemployment Compensation (EUC) Extended Benefits Total Number of Claims N/A1,017,593114,2941,131,887 Total Pay Outs $621.3M$3.3B$359.2M$4.3B Source: Texas Workforce Commission, April 2010

Unemployment Insurance Eligibility: The Basics Recent Wages “Through No Fault of Their Own” To maintain eligibility, must actively search for work & accept suitable work Average Weekly Benefit = $320/week (covers about 37% of prior wages) Average Duration = 17.4 weeks 5

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 Aug. 2011; implementation can be delayed up to 1 year beyond enactment 6

Why UIMA Reforms Are Good for the Texas Economy Stimulates Consumer Spending: $1 in UI Benefits = $2.15 in Econ. Activity ($1.2B) Lessens demand on state-funded social services (CHIP, Medicaid, TANF) Would reduce employer UI taxes by ~$500M in ($1,000/employer) 7

How is Texas Doing Under Current UI System? Texas vs. U.S.: Unemployment Rate and UI Recipiency Rate U.S.Texas Unemployment Rate9.7%8.2% Recipiency Rate without Federal Programs 35%22.5% Ranked 46th Recipiency Rate All Programs67%49% Ranked 49th Source: Texas Workforce Commission, Labor Market and Career Information Tracer, Local Area Unemployment Statistics; and U.S. Department of Labor UI Data Summary, United States, Fourth Quarter 2009

Major Texas Metros.: UI Recipiency Rate, February 2010 CountyRecipiency Rate without Federal Programs Recipiency Rate All Programs Bexar21.5%43.5% Dallas24.1%59.1% El Paso20.9%48.2% Harris24.1%52% Hidalgo22.5%47.2% Lubbock17.6%32.4% Potter21.4%44.3% Tarrant23.3%53.9% Travis22.1%48.7% Williamson22.1%46.8% Source: Texas Workforce Commission (TWC), Labor Market and Career Information Tracer, Local Area Unemployment Statistics; TWC Snapshot of UI Filers February 9, 2010; and U.S. Department of Labor UI Data Summary, United States, Fourth Quarter 2009

Select Texas Counties With the Lowest UI Recipiency Rates Compared to State Average, February 2010 Snapshot CountyRecipiency Rate without Federal Programs Recipiency Rate All Programs Brazos13.7%28% Comanche12.9%33.6% Coryell15.7%31.7% Hamilton18.2%40.2% Lubbock17.6%32.4% Mills9.3%24.7% Nacogdoches17.4%35.9% Shackelford17.1%30.5% Texas22.5%49.1% Source: Texas Workforce Commission (TWC), Labor Market and Career Information Tracer, Local Area Unemployment Statistics; TWC Snapshot of UI Filers February 9, 2010; and U.S. Department of Labor UI Data Summary, United States, Fourth Quarter 2009

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 ($848M) –If below, Deficit Tax authorized FY2009: $1.09B in Employer Contributions –$3.47B in UI Benefits Due to insolvency Texas Enterprise Fund & Skills Development Fund received no transfers for FY2010 Oct. 1, 2010 Projection: $2.510B below Floor –No TEF/SDF Transfers from Holding Fund 11

Why the Trust Fund is Insolvent Taxable wage base not suitable Of the 13 states likely to remain solvent into 2010, 10 states have indexed taxable wage base Low ceiling prevents buildup of reserves Pay as you go financing does not stabilize economy 12 Source: Texas Workforce Commission, CPPP Analysis

Trust Fund Reserves Not Adequate for Downturn Source: Texas Workforce Commission, CPPP Analysis 13

Trust Fund Loans 34 states and the Virgin Islands have depleted their UI Trust Funds and are borrowing from the Federal Unemployment Account As of April 19, 2010, Texas had borrowed $2.1B ($976M=current balance) in federal trust fund loans. Total state trust fund borrowing nationwide = $41B (As of April 19, 2010)

Consequences of Insolvency “Pay as you Go” financing punishes smaller business during recession, doesn’t stabilize economy Benefits rise, covered employers fall Large % of Employer Taxes directed to debt obligations (instead of consumer economy) 15

Recap & Recommendations 1.Enact suite of UI reforms to draw down $555.7M in 2011 –Decrease new employer taxes in –Diminish borrowing costs –Stimulate economic activity 2.Chart a path to Trust Fund Solvency Establish a long-term plan that moves toward “forward-financing” Stabilize funding for workforce & economic development 16

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