By Farrell Quinlan
The Arizona Legislature’s recently concluded special session on extending unemployment benefits revealed a number of misconceptions, misunderstandings and misrepresentations on how America’s and Arizona’s unemployment insurance systems work. Because unemployment benefits are governed by the weaving of complex federal and state laws that are designed to reflect certain principles of insurance and federalism, it is no surprise that the news media, elected officials, business owners and the general public were confused and developed certain assumptions that are untrue.
Two of the most broadly held but incorrectly understood aspects of triggering unemployment benefits in addition to the 72 weeks of regular state and federal emergency unemployment benefits are 1) who’s paying for the benefits and 2) who’s getting that money now that Arizona has forgone extending benefits.
There’s NO Free Money
Private-sector employers in Arizona pay 100 percent of all unemployment benefits regardless if the benefits are paid from state or federal accounts. Public-sector or government unemployment benefit liabilities are paid on a pay-as-you-go basis and do not contribute to net balances in the corpuses of the various state and federal unemployment insurance trust funds. Businesses are responsible for funding the state and federal accounts from which regular and extended benefits are paid. When the federal government “covers” extended benefits, the money is taken directly from an account that is 100 percent funded by the federal unemployment tax paid by private-sector employers.
That’s not just rhetoric from a small business advocate. According to latest UI Outlook report from the U.S. Department of Labor’s Office of Unemployment Insurance, Division of Fiscal and Actuarial Services:
Heavy borrowing from the Federal Unemployment Account (FUA) is projected to continue over the next few years. The aggregate loan balance is projected to increase from $40.2 billion at the end of FY 2010 to a peak end-of-year balance of $68.3 billion in FY 2013. Up to 40 states are projected to borrow… Due to the high volume of state loans and increased [extended benefit] payments, FUA and EUCA [the Extended Unemployment Compensation Account] are projected to borrow $26.7 billion from the general fund in FY 2011 and an additional $19.4 billion in FY 2012. The general fund advances must be repaid with interest. Neither account is projected to return to a net positive balance by 2016. [Emphasis added]
Those FUA and EUCA accounts are 100 percent funded by the federal unemployment tax paid by private-sector employers (currently $56 per year per employee). The general fund “advances” are only significant in providing the necessary liquidity to pay these extended benefits. They do not “cover” the cost with “free money” or money paid for by employees through their federal income taxes. These accounts are incurring massive negative balances that the U.S. Department of Labor says must be covered by future federal unemployment tax receipts—and with interest!
No Other State Gets “Arizona’s Money”
The second biggest misunderstanding commonly repeated during the extended benefits debate was the idea that some other workers in some other state would be getting the benefits that Arizona is not accessing. Our unemployment insurance system is not set up like 2009’s federal stimulus program that committed the U.S. Treasury to spend a fixed amount of money and spread it around to those states participating. Instead, extended unemployment benefits are paid based on a state’s underlying unemployment insurance structure and limits. By Arizona not extending benefits beyond 72 weeks, the federal accounts providing liquidity will not accrue more negative balances that must be repaid with interest through taxes on private-sector employers. Moreover, Arizona saved the federal government from needing to add to the $14.3 trillion national debt to loan cash to the FUA and EUCA accounts to cover extended benefits past 72 weeks.
The debate over the extension of unemployment benefits is an important one requiring the careful and considered judgment of our elected representatives in Congress and state legislatures. But that debate must not be distorted by erroneous information and the misreading of fundamental facts. Arizonans out-of-work through no fault of their own and the private-sector businesses responsible to pay taxes to fund unemployment benefits deserve a full and fair debate based on the truth, not misrepresentations.
# # #
Farrell Quinlan is state director for the National Federation of Independent Business which has 7,500 small business members in Arizona.
Thanks for the explanation. It is very helpful on an issue shrouded in mystery. UI funding sounds almost as complicated as K-12 education funding.
very helpful. But bigger questions remain like, will those no longer receiving UI buy goods and services from NFIB member companies? If they move to another state that is extending benefits, who will your member companies sell to?
I DON”T CARE WHO IS PAYING IT, IT”S A FEDERAL PROGRAM, THAT WORKS, AND THE STATE OF ARIZONA SHOULD HONOR IT”S COMMITMENT TO TAKE CARE OF IT”S CITIZENS,THROUGH STATE OR FEDERAL PROGRAMS.OUR BUDGET SHOULD NOT BE INCLUDED WITH THE THOUGHTS OF THE UNEMPLOYED BY NO FAULT OF THERE OWN, THESE CORPORATIONS ARE MAKING MONEY BY LAYING OFF WORKERS TO INCREASE THERE BOTTOM LINE,AND FORCING THERE REMAINING WORKERS TO PICK UP THE SLACK OF LAYED OFF WORKERS,USED TO BE COMPANIES HONORED THERE WORKERS WITH COST OF LIVING WAGE INCREASES,HEALTH BENEFITS,AND A WAGE THEY COULD LIVE ON, INSTEAD, WE ARE TURNING OURSELVES INTO A THIRD WORLD COUNTRY,WITH NO THOUGHT TO OUR FELLOW HUMAN BEINGS,WE DON”T DO A THING TO ATTRACT JOBS HERE, WE FORCE THEM OUT WITH OUR NEGATIVE WAYS OF DOING BIZ?BREWER WANTS URANIUM MINING AROUND THE GRAND CANYON, THE #1 TOURIST ATTRACTION IN THE WORLD, SHE IS FIGHTING MEDICAL MARIJUANA, ALTHOUGH IT WOULD CREAT NUMEROUS NEW JOBS AND INDUSTRY,PLUS A HUGE AMOUNT OF REVENUE FOR THE STATE, ARIZONA DOESN”T EXTEND UNEMPLOYMENT BENEFITS TO THE UNDER EMPLOYED THERE FORE CREATING MORE , POOR HUNGRY FOLKS ON THE STREET, WITH NO SHELTER,HEALTH CARE , AND PULLING REVENUE FROM THE BIZ THAT SHE SUPPORTS, BY SHUNNING THESE PROGRAMS FOR THE PEOPLE WE ARE TELLING THE PEOPLE TO GET OUT AND MOVE TO A STATE THAT CARES FOR IT”S CITIZENS. GOD CREATED THE FIRES THAT DESTROYED THE LANDS OF ARIZONA THESE LAST TWO MONTHS, OUR STATE LEGISLATURE IS DESTROYING THE UNEMPLOYED ,BY LACK OF CARING FOR HUMANITY.THE PEOPLE OF ARIZONA WON”T FORGET IT , COME ELECTION TIME?
That’s all very well – however, it doesn’t help the people on extensions who no longer have bill money. Another misconception – people on extensions have to file job search logs weekly – so they’re not sitting around on a distant beach playing shuffleboard. With other states willing to utilize the option to boost economies of 7% unemployment, it’s difficult to see how Arizona’s legislature didn’t see a need when, even with summer jobs open which aren’t permanent, we’re still hovering around 9.5%. I watched as one of the larger companies around here laid off around 400 people. While the severance offered would normally be considered generous (3 months pay), I knew personally one person out of 20 or so I kept in touch with who were able to find employment in that time. Of the manager level folks – the only ones had to take jobs paying less than half their previous wage, surrender homes, vehicles, or move in with family.
This isn’t promising for businesses looking for these same folks to spend money. When formerly middle-income people cut back to the absolute necessary minimum, things like entertainment, dining out, and vacation don’t get personal funding from us, the consumers. And less employees are needed to support those luxury industries in the area.
I don’t have a solution, but cutting what, for some, was the only source of income while job hunting (the only form of unemployment that actively enforces job searches), seems to be a case of cutting off one’s nose to spite one’s face.