Washington Missouri - State Begins to Pay Off Debts

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State Begins to Pay Off Debts

07/13/2005

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The Missouri Chamber of Commerce and Industry supports the Blunt administration's active approach to the state's ongoing problem with the solvency of Missouri's Unemployment Insurance Trust Fund (UITF).

Gov. Matt Blunt sent a plan to the U.S. Department of Labor to repay part of the state's debt, which is currently at $288 million. The state was forced to borrow funds from the federal government to cover unemployment compensation claims after the state fund became insolvent in 2003.

"While the reforms in legislation (House Bill 1268) passed in the 2004 legislative session have gone a long way to stop the spiral into debt, which would have reached $600 million this year had the 2004 legislation not been passed, employers are not completely out of the woods yet," said Daniel P. Mehan, Missouri Chamber president and CEO. "We're all -- our association, employers and the administration -- walking a tightrope right now, trying to balance obligations to the federal government with as minimal fiscal impact on Missouri employees as possible. This is no easy task -- it is a large and complex problem and those involved are exploring all options to responsibly restore the fund to solvency."

Missouri employers currently face two scenarios: Missouri employers must repay an estimated $52.1 million of the $288 million in current loan balance, or Missouri can be granted an "avoidance" from the Federal Unemployment Tax Act (FUTA) credit offset penalty before Nov. 10 to avoid the increase on federal unemployment taxes. The federal tax, retroactive to Jan. 1, would equal $21 per employee and would be paid through a reduction in an employer's FUTA tax credit.

The Missouri Chamber has been working with the governor's office and Missouri's Division of Employment Security throughout 2005 to minimize the impact of this problem on Missouri employers. The continued upswing in the economy and revenues generated by House Bill 1268 have helped improve stability of the system providing the potential to qualify for partial repayment status. Another factor impacting the stability of the fund are reforms within House Bill 1268 that have significantly slowed the growth of benefit payout. A few of these system reforms include elimination of the waiting bonuses and stronger misconduct penalties.

Now, it's up to the U.S. DOL to review Missouri's financial status and compliance plan and make a determination in the coming months. Regardless, employers should be prepared for the possibility of mandatory repayment assessed in the Fourth Quarter 2005, Mehan said.

"Bottom line, Missouri was paying out more in unemployment claims than it was bringing in," said Mehan. "The problem had been building but was ignored by previous administrations for years, despite active lobbying by the business community to address the problem. When the problem was finally faced by legislation passed in 2004, the debt had grown so large, there was no quick fix that could address it.

"This problem will take years of active engagement by the administration to repair. Fortunately, the current administration is more tuned in to the problem than we've seen in the past and is actively developing solutions."

June 29, the Missouri Department of Labor sent a payment of almost $92 million to the federal government. This payment saved employers an interest assessment on this amount and it also satisfies one of two requirements to qualify for an avoidance of the FUTA credit reduction.

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