Mass. jobless fund in the black
Stronger economy helped state avoid federal borrowing
Most states had to borrow money from the federal government to cover the cost of unemployment benefits during the long economic downturn, and interest payments on that money came due last week.
California owed more than $300 million in interest; Michigan and Pennsylvania each owed more than $100 million; New York, nearly $100 million.
The tab for Massachusetts? $0.
The Massachusetts unemployment insurance trust fund has come through the recession and the sluggish recovery in better shape than most, in large part because of a relatively stronger economy here. The fund, which is financed by taxes that businesses pay, had a balance of $256 million at the end of July, according to the most recent state report, and is projected to finish the year with a reserve of $63 million.
If the economy improves as forecast by the fund’s economic consultants, Moody’s Analytics of West Chester, Pa., the reserve is expected to swell to nearly $718 million by the end of 2012.
Although such balances remain below federal standards for a trust fund healthy enough to respond to surges in unemployment, Massachusetts businesses say the funding appears sufficient to allow the state to pay benefits and freeze unemployment taxes for a third consecutive year in 2012. That would prevent an increase in taxes to $879 per employee from $713.
Under state law, increases are automatically triggered if the trust fund balance is projected to fall below federal standards. Such automatic increases were scheduled to go into effect in each of the past two years, but the Legislature froze rates to help businesses and support hiring in a weak economy.
“The economy is still in a fragile position,’’ said John Regan, executive vice president for government affairs at Associated Industries of Massachusetts, a business trade organization. “It would be a bad time for a rate hike.’’
Massachusetts labor officials said it was still too early to consider freezing rates, since businesses will not have to make their first 2012 payment until April.
State unemployment trust funds are typically strained during recessions, when joblessness rises, and often borrow from the federal government to pay benefits. The loans are paid back and the funds replenished during good times.
Massachusetts had to do some short-term borrowing in recent years to pay weekly benefits while waiting for quarterly taxes from businesses, but quickly paid the money back, avoiding interest charges, according to state labor officials. If states repay within the year, no interest is charged.
“We don’t have huge reserves,’’ said Rena Kottcamp, research director for the Department of Unemployment Assistance. “But we made it through without having long-term borrowing and the penalties other states are facing.’’
The recession hit states differently. Michigan, which owes the federal government more than $3 billion in principal and interest for its unemployment borrowing, suffered massive job losses in the auto industry. Massachusetts industry, supported by health care and education sectors, was not affected as severely, Kottcamp said.
Massachusetts unemployment remained well below the national rate throughout the recession, peaking at 8.8 percent, compared to 10.1 percent nationally. As of August, Massachusetts had an unemployment rate of 7.4 percent, compared to 9.1 percent nationally.
Other states have even higher rates. California, which owes the federal government nearly $9 billion in principal and interest, had an unemployment rate of more than 12 percent in August. Michigan’s unemployment rate topped 11 percent.
In New England, Rhode Island also has struggled with double-digit unemployment in recent years, including a 10.6 percent jobless rate in August. Rhode Island owes the federal government $240 million in principal and interest, paying $7 million in interest last week.
To rebuild its trust fund to meet federal solvency standards by 2015, Rhode Island will decrease the maximum amount of weekly benefits to 50 percent of income from 60 percent over the next few years, bringing its benefits in line with other New England states, officials there said.
AIM’s Regan said he believes Massachusetts can rebuild trust fund balances to healthy levels without raising rates. Instead of boosting taxes sharply one year, then lowering them the next as the trust fund balance grows, Regan said, the state could achieve the same outcome by “smoothing the rates,’’ or holding them at today’s relatively high levels for the next year or two.
“If a rate hike is unnecessary, why would you do it?’’ he said.