Senator cool to tax bailout of jobless fund

Thursday, January 10, 2002

JEFFERSON CITY, Mo. -- A key senator expressed reservations Wednesday about requiring businesses to pay greater fees to keep Missouri's unemployment benefit fund solvent.

State Auditor Claire McCaskill released an audit Wednesday claiming that, as early as 2003, the state's Unemployment Compensation Trust Fund is expected to pay out $414 million more than it receives, which will lead to the fund's insolvency.

The audit recommends the Legislature increase tax rates charged to employers and delete provisions allowing some employers to avoid the taxes. It also recommends an increase in the taxable wage base that would be indexed to average wages.

Sen. John Loudon, R-Ballwin, chairman of the Senate Labor and Industrial Relations Committee, said the best way to deal with the problem is to restrict who can receive benefits.

"We need to tighten up the law first before we go to employers to step up with more taxes," Loudon said.

Once insolvency occurs, the audit said, employers not only have to help pay back the federal government but also will be assessed higher unemployment taxes to re-establish the fund.

"The problem is there, it is unavoidable and what we've got to do is address it head-on so business doesn't have to pay an extra lug," McCaskill said.

Dan Mehan, president of the Missouri Chamber of Commerce, said payouts from the fund rose by $150 million in the past two years.

Mehan, who had not seen the audit, said there also have been situations where people fired for drug use have ended up receiving jobless benefits.

"That flies in the face of the integrity of the trust fund," Mehan said. "The state needs to show proper stewardship of those resources before talk of a tax increase to manage the fund."

If insolvency takes place, state officials would have to borrow money from the federal government to keep paying benefits, which likely would increase employer costs, the audit said.

McCaskill said, "It's better to pay now than pay later."

She also said the number of employees involved in drugs who had received benefits was relatively small compared to overall payments.

The audit said the fund's instability is the result of low unemployment tax rates and provisions that allow employers with good ratings to pay no taxes. It also cited a low taxable wage base and a recent increase in benefit payments with no rise in revenues.

Missouri's fund became insolvent during the 1983 and 1992 recessions. In 1992, Missouri had to borrow $81.5 million from the federal government to cover unemployment benefits.

Lawmakers later changed state labor laws in an attempt to keep the fund balanced, but McCaskill said the new laws also restrict growth of the fund once it reaches $500 million. That does not allow the fund to grow during good economic times, she said.

"While Missouri's pay-as-you-go approach has minimized the tax burden on state employers during good economic times, this approach has not sustained the fund," the audit said.

The Missouri Department of Labor and Industrial Relations said it agreed with McCaskill's evaluation of the fund's status. But the department said there may be other steps the Legislature can take than those McCaskill recommended.

"The department has been concerned about trust fund solvency for several years but has not had the support of the business community in seeking solutions to avoid insolvency," the department said in an audit response.

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