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Unemployment Insurance Trust Fund Solvency and Reform Discussion Begins

November 11, 2011

The Senate Finance Committee heard testimony from a unified front of the major business groups including SBAM, who described the current system as in crisis. Steve Arwood, deputy director for the Department of Licensing and Regulatory Affairs also presented the grim details of what employers stand to face next year in terms of increased federal penalties and interest as.

In order to pay off the monstrous $3.2 billion in loans owed to the federal government for unemployment benefits, Michigan would become the second state to issue bonds. Under the bonding legislation, the state would issue the revenue bonds with companies responsible for repaying that money. While the amount per business wouldn’t be determined until the state goes to the bond market in early 2012, business groups said it will cost most companies less to repay the bonds than what the federal government is charging.

Businesses are paying federal unemployment penalties, and negative balance employers (those companies that have paid out more jobless claims than what their payments had been) are paying a state solvency tax to repay the billions owed. More federal penalties are expected to kick in. If nothing is done, the total estimated cost would be $340 per employee for positive balance employers and $408 per employee for negative balance employers in addition to regular unemployment tax payments.

The trade-off for businesses will be an increase in the taxable value for those regular unemployment tax payments. Currently set at the first $9,000 in wages, that level would rise to $9,500 until the state achieved a balance of $2.5 billion in the trust fund.

David Jessup, director of government relations for the Small Business Association of Michigan, told the committee that without major reforms, the unemployment system probably won’t recover by the next economic downturn. The higher unemployment taxes already are an impediment to economic growth in the state, he said.

Two bills were unanimously reported to the Senate floor to authorize the bonding, so long as legislation is enacted to provide significant reforms to the state unemployment insurance system.

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