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Unemployment compensation funds there for rainy days

Dan Juneau -   Jun 12, 2008

With little more than a couple of weeks remaining in the Legislature’s regular session, a good bill has passed that should not go unheralded.

There was little discussion about it when it was heard on the floors of both houses, and not much more in the committees.  In fact, it seemed to go virtually unnoticed. 

However, this bill’s passage means something to many in this state, and it is possible only because of efforts by the business and labor communities along with past Legislatures to ensure that Louisiana’s unemployment compensation (UC) trust fund is solvent and healthy.

HB 1165 was jointly sponsored by the Louisiana Association of Business and Industry (LABI) and the Louisiana AFL-CIO to provide employers a 10 percent reduction in their UC taxes while granting a 10 percent increase in benefits to the unemployed beginning in 2009.  This is a pretty startling piece of legislation when one considers the tremendous hit that the state’s UC trust fund took less than three years ago.

In the wake of the two hurricanes that struck Louisiana in 2005, almost $1 billion in UC benefits were paid to individuals out of work for several months due to the storms.  One might reasonably expect that our fund could not possibly be in such good shape as to accommodate the enhancements provided in HB 1165.  However, it can, and here’s why.

During the early 1980s, Louisiana’s economy plunged into recession, placing a tremendous strain on its UC system, which is funded exclusively through employer taxes.  That strain proved too much to bear, and the UC trust fund became insolvent within a year.  The Legislature was forced to raise employer taxes and lower claimant benefits in an effort to slow the hemorrhage.  At the same time, the state obtained loans from the federal government to pay benefits to the jobless and, within five years, Louisiana had borrowed over $700 million.

The federal loans came with high interest charges and extra federal taxes, and Louisiana’s employers struggled under their weight.  The business and labor communities joined together in support of legislation to authorize a bond issue to pay the federal debt.  Employers paid a special assessment to retire the bonds, which was accomplished much earlier than anticipated.

To prevent a recurrence of the insolvency that cost employers so much, a system of “triggers” was established relative to our trust fund’s balance. In times of high unemployment, as the fund declines, tax increases and benefit reductions are triggered at certain levels to ensure fund adequacy.

This good stewardship of our UC trust fund proved its worth.  When the storms came ashore in 2005, Louisiana possessed the largest fund in the country at $1.5 billion. The healthy size of our fund plus a congressional allocation of $400 million from the federal UC fund that helped to shore it up kept our fund in good shape.  Today, our fund is once again approaching $1.5 billion.  The interest generated from this large fund balance alone is adequate to cover the cost of the enhancements provided by HB 1165.

The two most significant hits to the state UC trust fund so far – the 1980s recession and the 2005 hurricanes – cost close to $1 billion each.  Louisiana’s employers and their workers may rest assured that these experiences have taught us not to take the UC fund’s solvency lightly.  Its monies are there for those rainy days when Louisiana’s economy falters. It is a lifeline for workers and their families during such times.  Thus, good stewardship of this fund should remain of paramount importance to us all.

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