published Wednesday, February 4th, 2009

Tax hike may be needed to sustain unemployment insurance fund

Audio clip

Michael Thurmond

Audio clip

James Neeley

The sinking economy is draining funds that pay benefits to those who lose their jobs in Tennessee and Georgia.

Without more money from employers, state experts predict Tennessee’s unemployment insurance fund could run out of money next year and have to borrow from the U.S. Treasury to keep making payments.

Georgia Labor Commissioner Michael L. Thurmond said Tuesday he hopes to avoid such a shortfall in his jobless trust fund. But he concedes that the faltering economy makes any prediction difficult.

“Clearly, we’re in deep economic crisis, and the stress of our fund is growing,” Mr. Thurmond said. “Right now, all of our projections are out the window and the deterioration appears to be accelerating.”

Jim Neeley, Tennessee’s commissioner of Labor and Workforce Development, said without more premiums from employers, the state’s trust fund for jobless benefits will run out of money by early 2010 for the first time in 26 years.

“We cannot endure a long period of unemployment without going broke,” Mr. Neeley said. “I thought that we were in pretty good shape until I saw this latest spike in unemployment.”

The number of Tennesseans receiving jobless benefits more than tripled in the past year from 47,800 at the end of 2007 to 148,078 this year.

The values of the unemployment trust funds in both Tennessee and Georgia have dropped by nearly one-third since the start of 2008. The U.S. House version of the federal stimulus bill might pump up to $381 million into the two states’ unemployment funds in addition to raising the weekly benefit for each worker by $25.

But replenishing the shrinking funds also requires employers to pay more at a time when they already are struggling from the weak economy. Georgia raised the premiums on about 20 percent of employers in January, and Tennessee employers will move to a higher-paying tax table in July because of the falling value of the trust fund.

In Tennessee, Mr. Neeley said he believes the state Legislature either will have to raise the wage base or impose a surtax, or both, on employers this year to keep the state fund solvent and avoid borrowing from Uncle Sam.

“If we go broke and have to borrow from the feds, then we will not only have to pay higher premiums to replenish our fund, but we’ll also have to pay interest costs on the loan,” he said.

So far this year, the unemployment trust fund has been paying out more than $20 million a week in benefits to the growing number of Tennesseans out of work, according to Dr. William Fox, an economist at the University of Tennessee.

Tennessee has capped the wages subject to the unemployment insurance tax at $7,000 for the past 17 years, but state officials are looking to raise that wage base to $10,000 over the next two years.

In 1983, when the jobless fund last went bust and the state borrowed $60 million to keep it afloat, Tennessee raised the tax rate in addition to boosting the wage base to pay off the debt in the next year. But Mr. Neeley said bigger changes will be needed this year.

Georgia never has borrowed funds for its jobless benefit program.

“Our trust fund is relatively stable compared to our sister states, but we’re in unprecedented times,” Mr. Thurmond said.

Deb Woolley, president of the Tennessee Chamber of Commerce and Industry and a member of the advisory board for Tennessee’s unemployment insurance fund, said most employers would rather pay more now to keep the fund solvent than have to pay even bigger premiums in the future if the state has to repay the federal government.

“Our goal is to find the quickest way to stabilize the fund at the lowest cost to business,” she said.

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