by Howard Stephenson
Employers in Utah have wondered why their unemployment insurance rates have recently skyrocketed. They’re asking why we had a rate reduction in 2000 if rates were only to be increased three years later. They want to know why they’re experiencing such an abrupt increase in rates if reserves were declining since 2000.
I had similar questions which I posed in a letter to Christopher Love, Director of Unemployment Insurance for Utah and to the Unemployment Insurance Advisory Board. Based on that request and the multitude of questions from employers across the state, an emergency meeting of the Advisory Committee was held last week.
Unemployment insurance is required by state and federal law. Utah’s rate is comprised of a social rate, a reserve factor, and an experience rate based on benefits received by an employer’s former employees.
The 2000 Utah Legislature lowered unemployment insurance rates and raised benefits with the passage of House Bill 345 (Swallow). When the legislation was passed, unemployment insurance reserves totalled $616 million which amounted to a 22 month reserve. The rates were supposed to be reduced $84.3 million and benefits increased by $26.5 million until the reserves were lowered by $111 million to leave the fund with an 18 month reserve. It was understood that as the reserves began to reach 18 month levels, rates would be re-examined.
The biggest cost of the $26.5 million benefit increase resulted from the increase in benefits from 60% of average weekly wages to 65% of average weekly wages. Intent language was read on the floor of each house, that if a recession were to occur, the enhanced benefits contained in HB 345 would be reconsidered. The recession did occur, but benefits have not been pulled back while rates have been increased dramatically.
The intent language read into the record by Senator Ed Mayne, President of Utah AFL-CIO was very specific: “During the recessionary period of the early 1980’s, Business and Labor worked together to support lowering the unemployment benefit from 65% to 60%. Today business and labor have come together during more prosperous times to increase the benefit back to 65%. It is the intent of the Legislature that if a significant economic downturn occurs, business and labor will again join forces to lower the benefit and increase premiums accordingly.”
It’s clear that with the current rate increases, benefit amounts must be reduced as promised. There also needs to be changes in the law to anticipate rate changes earlier through modest increases rather than waiting for reserves to drop to dangerous levels and then imposing sizable increases which currently have many employers reeling.
The accompanying graph shows that with the benefit of hindsight, the rate reduction and benefit increases of 2000 should never have occured. The economic downturn was already beginning to eat up the large reserves.
What is needed
Legislation must be passed to ensure that rate and benefit adjustments are made more quickly when reserves are declining at a rapid rate. It is clear that had the rate not been cut in 2000 and benefits not increased in 2000, the current increase would not be so large. Additionally, had a modest rate increase been imposed when the rate of decline in the reserves began to drop rapidly, the size of the current rate increase would not have been so significant.
Based on the emergency meeting of the Advisory Council, it has been proposed that the social rate be allowed to float rather than being triggered by the reserve factor and that benefits be dropped back to 60%.