Modernizing Texas Unemployment Insurance System Joint Committee Hearing:

Modernizing Texas Unemployment Insurance System Joint Committee Hearing: House Committee on Technology, Economic Development & Workforce and the Committee on Business & Industry May 17, 2010 Don Baylor, Jr. Senior Policy Analyst [email protected] Texas Unemployment Remains Elevated: Rate up 86% since beginning of recession As of April 26, 2010, 464,000 UI claimants (all programs) Rate expected to remain high into 2012 as hidden job seekers re/enter labor market Large rise in longterm unemployment Over 40% unemployed for 6 months or more Initial Claims Steady since beg. of 2010 Texas Unemployment Rate During Current Recession December 2007 - March 2010 9%

8.2% 8% 7% 6% 5% 4.4% 4% Dec07 Mar08 Jun08 Sep08 Dec08 Mar09 Jun09 Sep09 Dec09 Mar10 Sources: Texas Workforce Commission, CPPP Analysis. 2 A Few Snapshots of Texas UI Claims

UI Claims Comparison July 2009 & April 2010 Program July 18, 2009 April 26, 2010 Regular UI 283,208 201,082 EUC 121,214 239,327 EB 18,200 23,382 Total Claims 422,622 463,791

Source: Texas Workforce Commission, August 2009 & April 2010 UI Federal Programs UI Federal Programs through April 17, 2010 $25 Weekly Emergency Extended Federal Unemployment Benefits Additional Compensation Compensation (EUC) Payments Total Number of Claims N/A 1,017,593 114,294 1,131,887 Total Pay Outs $621.3M

$3.3B $359.2M $4.3B Source: Texas Workforce Commission, April 2010 Unemployment Insurance Eligibility: The Basics Recent Wages Through No Fault of Their Own To maintain eligibility, must actively search for work & accept suitable work Average Weekly Benefit = $320/week (covers about 37% of prior wages) Average Duration = 17.4 weeks 5 Unemployment Insurance Modernization Act/ARRA Provides $7B in incentive funding for states to modernize UI eligibility Potential TX Share: $555.7M To draw down funds, states must make policy changes (if not already enacted) Changes must be enacted by Aug. 2011; implementation can be delayed up to 1 year beyond enactment 6 Why UIMA Reforms Are Good for

the Texas Economy Stimulates Consumer Spending: $1 in UI Benefits = $2.15 in Econ. Activity ($1.2B) Lessens demand on state-funded social services (CHIP, Medicaid, TANF) Would reduce employer UI taxes by ~$500M in 2011-13 ($1,000/employer) 7 How is Texas Doing Under Current UI System? Texas vs. U.S.: Unemployment Rate and UI Recipiency Rate U.S. Texas Unemployment Rate 9.7% 8.2% Recipiency Rate without Federal Programs 35% 22.5% Ranked 46th Recipiency Rate All Programs

67% 49% Ranked 49th Source: Texas Workforce Commission, Labor Market and Career Information Tracer, Local Area Unemployment Statistics; and U.S. Department of Labor UI Data Summary, United States, Fourth Quarter 2009 Major Texas Metros.: UI Recipiency Rate, February 2010 County Recipiency Rate without Federal Programs Recipiency Rate All Programs Bexar 21.5% 43.5% Dallas 24.1% 59.1% El Paso 20.9%

48.2% Harris 24.1% 52% Hidalgo 22.5% 47.2% Lubbock 17.6% 32.4% Potter 21.4% 44.3% Tarrant 23.3% 53.9%

Travis 22.1% 48.7% Williamson 22.1% 46.8% Source: Texas Workforce Commission (TWC), Labor Market and Career Information Tracer, Local Area Unemployment Statistics; TWC Snapshot of UI Filers February 9, 2010; and U.S. Department of Labor UI Data Summary, United States, Fourth Quarter 2009 Select Texas Counties With the Lowest UI Recipiency Rates Compared to State Average, February 2010 Snapshot County Recipiency Rate without Federal Programs Recipiency Rate All Programs Brazos 13.7% 28% Comanche

12.9% 33.6% Coryell 15.7% 31.7% Hamilton 18.2% 40.2% Lubbock 17.6% 32.4% Mills 9.3% 24.7% Nacogdoches 17.4%

35.9% Shackelford 17.1% 30.5% Texas 22.5% 49.1% Source: Texas Workforce Commission (TWC), Labor Market and Career Information Tracer, Local Area Unemployment Statistics; TWC Snapshot of UI Filers February 9, 2010; and U.S. Department of Labor UI Data Summary, United States, Fourth Quarter 2009 Unemployment Compensation Trust Fund: The Basics Taxable Wages (first $9,000 per worker) Ceiling = 2% of Taxable Wages (~$1.7B) If above, Employer Rebates are issued Floor = 1% of Taxable Wages ($848M) If below, Deficit Tax authorized FY2009: $1.09B in Employer Contributions $3.47B in UI Benefits Due to insolvency Texas Enterprise Fund & Skills

Development Fund received no transfers for FY2010 Oct. 1, 2010 Projection: $2.510B below Floor No TEF/SDF Transfers from Holding Fund 11 Why the Trust Fund is Insolvent Taxable Wage Base Not Keeping Up With Total Covered Wage Growth in Texas (1990-2009) $600 193% Growth $500 $400 $300 Gap between Total Wages and Taxable Wages has widened from 3:1 to 5:1 $200 $100 2008 2006 2002 2000 1998 1996

1994 1992 2004 67% Growth $1990 $ Billions Taxable wage base not suitable Of the 13 states likely to remain solvent into 2010, 10 states have indexed taxable wage base Low ceiling prevents buildup of reserves Pay as you go financing does not stabilize economy Source: Texas Workforce Commission, CPPP Analysis 12

Trust Fund Reserves Not Adequate for Downturn UI Trust Fund Not Prepared for Any Recession $6 Balance Needed for Solvency at Highest-*Ever* Payout Rate $4 Balance Needed for Solvency at Highest *Recent* Payout Rate $3 $2 Statutory Ceiling on Balance $1 $0 Actual Balance -$1 -$2 -$3 1991 1992 1993 1994 1995 1996 1997

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 (p) 2011 (p) 2012 (p) Trust Fund Balance (in $B) $5 Statutory Floor on Balance Fiscal Year Source: Texas Workforce Commission, CPPP Analysis 13 Trust Fund Loans 34 states and the Virgin Islands have depleted their UI Trust Funds and are borrowing from the Federal Unemployment Account As of April 19, 2010, Texas had borrowed

$2.1B ($976M=current balance) in federal trust fund loans. Total state trust fund borrowing nationwide = $41B (As of April 19, 2010) Consequences of Insolvency Pay as you Go financing punishes smaller business during recession, doesnt stabilize economy Benefits rise, covered employers fall Large % of Employer Taxes directed to debt obligations (instead of consumer economy) 15 Recap & Recommendations 1. Enact suite of UI reforms to draw down $555.7M in 2011 Decrease new employer taxes in 2011-13 Diminish borrowing costs Stimulate economic activity 2. Chart a path to Trust Fund Solvency Establish a long-term plan that moves toward forward-financing Stabilize funding for workforce & economic

development 16 Use of This Presentation The Center for Public Policy Priorities encourages you to reproduce and distribute these slides, which were developed for use in making public presentations. If you reproduce these slides, please give appropriate credit to CPPP. The data presented here may become outdated. For the most recent information or to sign up for our free E-Mail Updates, visit www.cppp.org. CPPP Center for Public Policy Priorities 900 Lydia Street Austin, TX 78702 P 512/320-0222 F 512/320-0227

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