Modernizing Texas Unemployment Insurance System Senate Committee on

Modernizing Texas’ Unemployment Insurance System Senate Committee on Economic Development March 30, 2009 Don Baylor, Jr. Senior Policy Analyst baylor@cppp. org

Texas Unemployment is Soaring Up 52% since beginning of recession • 102, 000 jobs lost in Jan & Feb 2009; worst 2 monthly job losses on record • Unemployment rate may not peak until 2 years after recession ends • TX ranks 50 th in UI recipiency rate (TX: ~22%; US avg: 39%) 262, 000 more Texans unemployed since December 2007 Sources: Texas Workforce Commission, CPPP Analysis. 2

Things to Remember about UI • Only eligible if lost job through “no fault of their own” and must actively search for work • UI Claimants receive less than ½ of previous salary (35% of average weekly wage) • Duration=26 weeks (Avg TX duration=13 weeks; U. S. average =15 weeks. ) • Current UI eligibility disadvantages working mothers

Unemployment Insurance Modernization Act/ARRA • Provides $7 B in incentive funding for states to modernize UI eligibility • Potential TX Share: $555. 7 M • To draw down funds, states must make policy changes (if not already enacted) • Changes must be enacted by 2011 – Implementation can be delayed up to one year after certification (Summer 2010) 4

Why UIMA Reforms Are Good for the Texas Economy • Stimulates Consumer Spending: $1 in UI Benefits ~ $2. 50 in Econ. Activity ($1. 2 B over 7+ years) • Lessens demand on state-funded social services (CHIP, Medicaid, TANF) • Would reduce Deficit Tax by nearly 70%, and average tax rate by 10 -20% in 2010 5

Employer Deficit Tax will be Levied to Rebuild Trust Fund Deficit tax rate: 1. 09% Deficit taxrate: 0. 34% Source: Texas Workforce Commission, CPPP Analysis 6

UI Reforms to Draw Down $555 M Best Reform Package • Alternate Base Period • Comparable Work Search (Part-time) • Compelling Family Reasons Conforming Legislation: CSHB 2623/CSSB 1569 Source: Texas Workforce Commission, CPPP Analysis 7

Alternate Base Period Standard Base Period 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 08 08 09 09 W W W (W) Lag Filing Alternate Base Period 2 Q 3 Q 4 Q 1 Q 2 Q 08 08 08 09 09 W W (W) Filing • Legacy of manual wage records • 20 states use ABP (GA, OK, NM, VA) • Passed TX House (2007) • Additional UI Benefits per year (~$40 M) • Required to access any federal funds ($185 M) 8

Comparable Work Search (Part-Time) • Many workers are limited to part-time work due to compelling reasons, especially working mothers • “Full-time” Work Search Requirement NOT in Statute or Rule • Additional UI Benefits/year ($15 -27 M) 9

Compelling Family Reasons for Leaving Work Current Law Trailing Spouse – No waiting period for military spouses; 6 wk waiting period for civilians Family Illness – Available for spouse, minor child Domestic Violence – Must present either police report, protective order, or physician’s note Proposed Changes Trailing Spouse – eliminate 6 week waiting period for civilians Family Illness – include parents as part of “immediate family” Domestic Violence – Can provide other forms of documentation (e. g. attorney, shelter worker) (UI DV denials are mostly due to documentation barriers) Additional UI Benefits/year ~ $3 M/year

Unemployment Compensation Trust Fund: The Basics • Taxable Wages (first $9, 000 per worker) • Ceiling = 2% of Taxable Wages (~$1. 7 B) – If above, Employer Rebates are issued • Floor = 1% of Taxable Wages (~$860 M) – If below, Deficit Tax imposed • 2008: $1. 16 B in Employer Contributions – $1. 35 B in UI Benefits • 2009 Claims at least 2 x higher than 2008 • Oct. 1 Projection: $812 M below Floor – No TEF/SDF Transfers from Holding Fund 11

Why the Trust Fund is Insolvent • Tx ranks 47 th in UI tax rates on total wages • Low ceiling prevents buildup of reserves • “Backwards Financing” Model • Issued $1. 4 B in bonds in 2003 • Will need to borrow $2 -$4 B to keep Trust Fund afloat (20092011) Source: Texas Workforce Commission, CPPP Analysis 12

Deficit Spending a Key Driver of UI Tax Increases *projected Source: Texas Workforce Commission & Texas Comptroller, CPPP Analysis 13

Texas Commission on Unemployment Insurance • • Financing Long-Term Solvency Access Eligibility Administrative Efficiency Technology Impact of UIMA Reforms

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