Zach Schiller in The Toledo Blade: Underfunding puts system in peril
Ohio’s unemployment compensation system is more than $1 billion in debt to the federal government, mainly because the state has failed to increase employer taxes.
Report examines why state owes more than $1 billion to the U.S.
Ohio’s unemployment compensation system is more than $1 billion dollars in debt to the federal government primarily because it was underfunded for years, according to a new Policy Matters Ohio report issued today.
“Taxes for unemployment compensation in Ohio are lower than average, and come to less than a penny per dollar of wages,” noted Zach Schiller, Policy Matters Ohio research director and report author. “Ohio did not put enough money into its fund to prepare for bad times; we entered the last recession tied for the third-lowest solvency of any state in the country.”
The small share of employee earnings that is taxed is a key weakness in the system: Ohio employers pay tax on just the first $9,000 in each employee’s wages each year. This tax base is well below the national average of $13,259. It is also below the level it would be – $14,070 – if it had been adjusted for inflation since it was last changed in 1995. “This amount needs to be raised and indexed,” Schiller said. The report also recommended eliminating requirements in Ohio law that have led to cuts to employer tax rates even while we have a billion-dollar debt.
Big increases in the number of unemployed and in long-term unemployment during the recession increased the benefit payout and contributed to our debt, the report found. However, benefit levels – and share of jobless Ohioans who get benefits – are not high. The average weekly benefit in the year ended June 30 was $322.97, which is not enough to keep a family of three above the official poverty line. “Ohio has a very high earnings requirement to qualify for unemployment benefits, and fewer unemployed qualify here than across the country,” Schiller noted.
An Ohio House committee has held hearings on the unemployment debt issue across the state in the past few months. After years of underfunding this crucial system, Ohio must face the need for more adequate financing and a higher taxable wage base.
Policy Matters Ohio is a nonprofit, nonpartisan state policy research institute
with offices in Cleveland and Columbus.
Comments on Ohio’s Uniform Workforce Plan
The state uniform workforce plan announces 10 reforms and three goals for the Ohio workforce system: to help more Ohioans compete for quality, living-wage jobs with opportunity for career advancement, to help employers succeed and grow, and to provide job training in high-demand occupations that also results in work-place valued credentials. Helping more Ohioans gain marketable job skills and helping more people connect to decent work is a step in the right direction. But, as with most strategic plans, “the devil is in the details,” or rather in the implementation of the strategic vision. This draft plan falls in the waning months of the Workforce Investment Act. About six months after this draft plan is finalized, the rulebook will change. The Workforce Innovation and Opportunity Act (WIOA) takes effect in July, with state plans due in March 2016. This draft plan will be in effect during a critical transition period and for that reason the plan should focus on reforms that set the stage for success under WIOA. To be better prepared for WIOA’s focus shift to low-income adults and youth with barriers to employment the state plan should do the following:
Registration with Ohio Means Jobs should be optional, or at least include waivers and alternative equivalent services for those that have access barriers.
The state should include workforce programs embedded in TANF and SNAP in their uniform strategic plan.
The state plan should include higher education as a critical workforce partner.
Ohio should eliminate the sequence of service requirement, and focus on connecting clients to the tools they need to compete for decent work.
Sanctions under WIOA are tough. Consistent failure in one program’s metrics will lead to a financial sanction at the state level. Planning the WIOA transition now will give Ohio a better chance to meet and exceed the new measures. But more importantly, WIOA-focused planning will help vulnerable populations gain access to quality employment and training services, improving the lives of individuals, the stability of families, the labor pool for employers, and ultimately, the vibrancy of our Ohio communities. Read our full comments at www.policymattersohio.org/workforce-plan.
Policy Matters Ohio is a non-partisan, non-profit policy research institute,
on the web at www.policymattersohio.org.
On the eve of a holiday designed to honor the men and women who have served and protected the country, the leaders of two Ohio Veterans Service Commissions are calling for federal policies that would help protect veterans from the payday lending debt trap. Federal rules are necessary since payday lenders sidestep the state law meant to regulate them while charging upwards of 400% APR.
“Payday lending continues to be a serious problem for a growing number of our clients,” said John Warrix, the assistant director of the Franklin County Veterans Service Commission, a county agency that provides advice and emergency financial assistance to veterans and active duty members.
“The payday lenders make lending too easy. They enable people to build up a debt that they can’t get out of. Many of our clients are involved in two or more payday lenders, making the cycle nearly impossible to break.”
Legislative efforts to rein in payday lending in Ohio spanned four years, beginning in 2006. The Short Term Lender Law with a 28% APR rate cap passed in 2008. The payday industry challenged the law in a referendum and lost in a landslide. Six years later, it’s business as usual for the exploitive industry. Lending under inappropriate statutes such as the Mortgage Loan Act, payday lenders continue to trap Ohioans in a cycle of debt with interest and fees that have climbed back into the triple digits.
Cuyahoga County VSC Director John Reiss sees many of his clients also caught in the debt trap. “We have many veterans who are struggling with the cycle,” he said. “Payday loans are designed so that once you get in, the ways out are extremely difficult.”
Reiss also expressed frustration at how payday lenders target veterans and others on fixed low incomes. “They know exactly where the needy are. They put themselves in locations where people are struggling; where people are likely to be impulsive,” he said.
The number of veterans Warrix sees trapped in payday lending debt hasn’t changed since 2008, he said. “Once the payday lenders found the loopholes, they started popping right back up. We have clients who are wrapped up in four different loans at the same time.”
Payday loans are advertised as a way to meet a one-time need but are specifically designed to act like financial quicksand, forcing borrowers to take out loan, after loan, after loan at an average interest rate of nearly 400 percent. The vicious cycle of debt is not a side effect of payday lending, but rather the business model of payday lending – a debt trap by design.Three quarters of payday loan fees come from borrowers with 10 or more loans per year.
By 2007, so many troops had fallen into the debt trap that the Defense Department considered it a threat to military readiness and fought for protections that were eventually enacted in the Military Lending Act. This year, the Defense Department proposed broader rules to close gaps and provide more protections for active duty military.
“We need policies that prevent the debt trap among veterans as well, so that it doesn’t take five years to pay off a loan that was originally worth only a few hundred dollars,” Warrix said.
Warrix and Reiss said they both support strong payday lending rules currently being considered by the Consumer Financial Protection Bureau, including ability to repay standards like those that exist for mortgages and credit cards. “We went through this whole subprime lending meltdown a few years ago,” said Reiss. “You’d think we’d have learned our lesson about predatory lending.”
“After their service to our country, our veterans and their families deserve protection from financial predators,” Reiss said. “But why stop there? All Americans should be protected.”
COHHIO, the Ohio Poverty Law Center and Ohio CASH, a project of Policy Matters Ohio, frequently work together and against predatory lending products and schemes.
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State tax changes approved over the past two years have further tilted Ohio’s tax system in favor of the wealthiest.