Facts: Unemployment Insurance Stimulus Funds

Four Facts About Unemployment Insurance

1. The federal stimulus package requires the state to change its laws and expand unemployment benefits in a way that the Legislature and Governor have not previously embraced in order to receive federal stimulus funding for unemployment.

• Congress was so intent on forcing states to change their laws that they require states to make the changes permanent and certify that "the provision is permanent (that is, not temporary) and is not subject to discontinuation under any circumstances other than repeal by the legislature." (Unemployment Insurance Program Letter No 14-09, Department of Labor, Feb 26, 2009)

2. Governor Perry has committed to reviewing all requirements on states related to stimulus funding and said he will reject funds that come with too many strings attached. Under the requirements for this stimulus funding, employers will bear the burden of higher taxes to pay benefits to more people.

• Had Congress merely wanted to help states in the face of higher unemployment, Congress could have provided the funds to the state without strings attached just as it did in 2002 (Texas received almost $600 million in a Reed Act Distribution in 2002).
• Texas already accepted unemployment funds in the stimulus package that increased unemployment benefits by $25 a week for most of 2009. These funds did not come with strings attached.

3. Raising taxes in the current economy hurts employers at a time when they are trying to stay in business, meet their payroll, and work to expand their business and hire more Texans. This is not the time to raise taxes and expand programs.

• The Texas Workforce Commission estimates that the expansion in benefits will cost roughly $75 million/year. While the federal government tries to entice states to expand the program with funding to pay for the expanded benefits in the short-term, the expansion would likely leave Texas employers with higher taxes to fulfill the obligations in the long-term. What’s more Texas employers will start to feel the effects immediately, as tax rates are recalculated to reflect the changes.

4. It is no accident that Texas led the nation in job creation in 2008, has more Fortune 500 companies calling Texas home than any other state, and has continued to draw businesses to Texas even with the slowing economy. This is no time to abandon the principles that have led to our success: keep the burden of government low and the regulatory and tax climate predictable, making Texas the place that people want to invest their capital and create jobs for hardworking Texans.

Unemployment Insurance Fact Sheet

What is Unemployment Insurance?

Unemployment benefits are paid to eligible individuals from taxes paid by employers.

• The federal government collects an unemployment tax under the Federal Unemployment Tax Act, which primarily finances administrative costs, loans to states, and extended benefits.
• The state collects payroll taxes from employers to cover benefits, which are deposited to the state’s Unemployment Trust Fund.
• Unemployment Insurance truly functions like an insurance policy. In Texas, employers pay into the system to insure their employees against loss of wages, and the system will provide financial assistance to eligible individuals who lose their job through no fault of their own while they look for a full-time job for a fixed period of time.

How is the Unemployment Trust Fund structured and funded?

The Trust Fund's floor is set equal to 1% of payroll, currently around $860 million, and its' ceiling is equal to 2% of payroll.

The Trust Fund is supported by taxes on employers based on employee wages.

• The general tax is paid by all employers and varies across employers. The general tax includes experience ratings that reflect each individual employer’s unemployment claims.
• The replenishment tax is a flat rate paid by all employers. The Texas Workforce Commission (TWC) has discretion in setting rates and may suspend the collection of the replenishment tax when the Trust Fund is above the ceiling, as occurred for Calendar Year 2008.
• The deficit tax is applied to all employers when the Trust Fund falls below the floor, in an aggressive effort to bring the Fund back above the floor.
• An obligation assessment is an experience-rated assessment against employers for the purposes of retiring debt when the state must borrow to make the Fund solvent.

This tax structure is intended to strike a balance between having enough money in the fund to fulfill the obligation to pay unemployment benefits to eligible Texans, while allowing employers to keep as much money in the economy to support their business and create jobs.

What changes are required for Texas to receive federal stimulus funding?

The federal stimulus funds distributed to the states come from the Federal Unemployment Account based on the state's share of the federal unemployment taxes paid. In order to get $555 million in federal stimulus funds, the state must change the state law.

• To receive one third of the funding (approximately $185 million), the state must have an alternate base period for purposes of calculating eligibility that includes using the most recent quarter of wage credits in the calculation. Under current state law, the state provides unemployment benefits to individuals who have wages in two of the first four of the last five quarters, thereby excluding any wages earned in the most recent quarter.

TWC estimated impact:
CY2010: $43.8 million
CY2011: $43.4 million
CY2012: $40.9 million
CY2013: $39.7 million
CY2014: $39.4 million
Admin Costs: $5.2 million

• To receive the additional two-thirds of the funding, the state must make the change to the alternate period (above) and also change state statutes to extend benefits to two of the following four groups:
  • Provide benefits to individuals seeking only part-time work when they previously worked part-time. Currently, individuals must seek full-time work regardless of whether they worked full-time or part-time. TWC estimated impact CY2010-2014: $137.4 million in benefits, $9.6 million in administrative costs.
  • Provide benefits to individuals who voluntarily left employment for a compelling family reason, including: domestic violence (already provided under Texas law); illness or disability of an immediately family member (federal requirements require more than state provisions that already include illness of minor child or terminally ill spouse); and accompanying a spouse when moving for the spouse’s job (Texas currently covers military families). TWC estimated impact CY2010-2014: $46.2 million in benefits, negligible administrative costs.
  • Provide 26 weeks of additional compensation to unemployed individuals that have exhausted their unemployment benefits and are participating in state-approved or WIA funded training programs. TWC estimated impact CY2010-2014: $161.8 million in benefits, $230,000 in administrative costs
  • Increase payments by at least $15 per dependent, per week capped at lesser of $50 or 50% of the individual’s weekly benefit amount. TWC estimated impact CY2010-2014: $1.4 billion in benefits, $10 million in administrative costs

Are there other federal stimulus funds available for Unemployment Insurance?

The Texas Workforce Commission announced on February 24, 2009 that eligible claimants will receive an additional $25 a week in unemployment benefits. This increase in benefits applies to benefits paid from February 22, 2009 to initial claims made by December 26, 2009. This increase in benefits is federally funded and applies to all unemployment benefits paid. Employers will not be charged additional funds.

(Note TWC estimates provided in testimony to the House Select Committee on Federal Economic Stabilization Funding on March 10, 2009)