1. House Select Committee on Federal Economic Stabilization Funding Modernizing Texas’ Unemployment Insurance System House Select Committee on Federal Economic Stabilization Funding March 10, 2009 Don Baylor, Jr. Senior Policy Analyst baylor@cppp.org baylor@cppp.org

2. Texas Unemployment is Soaring Up 49% since beginning of recession 75,800 jobs lost in Jan 2009; worst monthly job loss on record Unemployment rate may not peak until 2 years after recession ends TX ranks 50 th in UI recipiency rate (TX: ~20%; US avg: 37%) Sources: Texas Workforce Commission, CPPP Analysis. 2 250,000 more Texans unemployed since December 2007

3. 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) 3

4. 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 4

5. Why the Trust Fund is Insolvent Taxable wage base not suitable 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 (2009- 2011) 5 Source: Texas Workforce Commission, CPPP Analysis

6. Trust Fund Reserves Not Adequate for Downturn *projected Source: Texas Workforce Commission, CPPP Analysis 6

7. Consequences of Insolvency Extreme Volatility in Employer Tax Rates (double or triple during recessions) Large % of Employer Taxes directed to debt obligations Jeopardizes funding for Economic & Workforce Development Labor Code Sec. 203.028 7

8. Deficit Spending a Key Driver of UI Tax Increases 8 *projected Source: Texas Workforce Commission & Texas Comptroller, CPPP Analysis

9. Employer Deficit Tax will be Levied to Rebuild Trust Fund 9 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

10. 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 new employer UI taxes by nearly 70% in 2010 (Deficit Tax) 10

11. UI Reforms to Draw Down $555M Best Reform Package Alternate Base Period Comparable Work Search (Part-time) Extended Benefits in Training Conforming Legislation: HB 2623/SB 1421 Source: Texas Workforce Commission, CPPP Analysis 11

12. Alternate Base Period Legacy of manual wage records 20 states use ABP (GA, OK, NM, VA) Passed TX House (2007) Additional 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 12

13. Comparable Work Search (Part-Time) Many workers are limited to part-time work due to compelling reasons “Full-time” Work Search Requirement NOT in Statute or Rule Negatively impacts women, students and elderly DOL Guidance: If “majority of weeks in base period” are part-time, then can search for (comparable) part-time work 13

14. Extended Benefits in Training Would only apply to “TWC-approved” training Current law: “An individual may not be denied benefits because the individual is in training with the approval of the commission.” –Need conforming legislation to get certified Critical for Unemployed who need Retraining –Boosts economy with in-demand skill sets Exhaust federal extensions before becoming eligible 14

15. Recap & Recommendations 1.Enact HB 2623/SB 1421 to draw down $555.7M in 2009 –Decrease new employer taxes in 2010 by ~70% –Diminish borrowing costs –Stimulate economic activity 2.Chart a path to Trust Fund Solvency Establish a long-term plan that adjusts taxable wage base and considers covered wages for statutory triggers, especially ceiling Stabilize funding for workforce & economic development 15

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