Fix Ohio’s unemployment compensation fund with adequate resources

- November 24, 2014
   

 Zach Schiller in The Toledo Blade: Underfunding puts system in peril

Read the editorial online

 Ohio’s unemployment compensation system is broke. It owes more than $1.3 billion to the federal government. We have been borrowing for more than five years, but now the issue is getting attention.

State Rep. Barbara Sears (R., Monclova Township) heads an Ohio House committee that has held hearings around the state on the subject, including one in Toledo last month. As committee members heard, unemployment compensation is crucial to families. It helps increase purchases and bolsters the economy just when it needs a boost.

But Ohio’s unemployment system is in debt because the state has underfunded it. Jobless-benefit payouts spike from the unemployment that recessions bring. In the past, Ohio and other states built up their reserves in good times so they would have enough to pay benefits in bad times. Unfortunately, we got away from this sensible practice. Before the 2001 recession, Ohio had less than two-thirds of the needed reserves to meet the U.S. Department of Labor’s solvency benchmark.

After that recession, we did not replenish the fund to the degree we had after previous slumps. As the Great Recession officially began in late 2007, we were tied with Missouri for the country’s third-lowest solvency.

Our unemployment compensation system is funded by employer taxes. An official of the Ohio Department of Job and Family Services told the House committee that Ohio’s current tax on total wages is very low in comparison with taxes in other states.

For 11 of the 12 years before our fund become insolvent in early 2009, Ohio’s tax rate was below the U.S. average. If Ohio employers had paid the average tax paid by employers across the United States between 1996 and 2006, the state trust fund would have received another $1.7 billion.

Unemployment compensation taxes are not a big cost to employers; in Ohio, they add up to less than a penny per dollar of wages. One major reason that taxes are so low in Ohio is that the unemployment compensation tax is paid only on the first $9,000 of each worker’s wages. That amount hasn’t changed in almost 20 years, and is well below the U.S. average taxable wage of $13,259.

Ohio employers are paying additional federal unemployment taxes to get rid of our debt. But even with these required payments, our tax rates are below average. High unemployment during the recession — and especially the long-term joblessness that has continued to plague Ohio and the nation — increased the amount our fund paid out in benefits and contributed to our borrowing.

Average benefits that jobless Ohioans get are in line with those across the country. As in most other states, unemployment compensation benefit levels in Ohio rise with wages; they keep up with what workers earn.

The average weekly benefit in Ohio for the 12 months that ended June 30 was $322.97 (nationally, it was $313.99). If it were an annual total, the Ohio average would be $16,794 — less than the official U.S. poverty line for a family of three, at $19,790 a year.

At the same time, Ohio is very stingy about whom it allows to qualify for unemployment benefits, and fewer unemployed workers qualify here than across the country. You can work as much as 29 hours a week at minimum wage, make $12,000 a year, and not qualify. The Department of Job and Family Services says “it is already more difficult to qualify for unemployment benefits in Ohio than in most states.”

The key solution to Ohio’s unemployment compensation funding is to raise, and index to wage levels, the amount of each worker’s pay that is taxed. States that index the amount of taxable wages mostly have avoided having to borrow. A large majority of states such as Ohio, which don’t index, ended up in debt.

In looking to pay off Ohio’s unemployment compensation debt and build an adequate reserve, lawmakers should look at what caused the problem in the first place: inadequate funding.

 

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