State may need fed loan for unemployment fund

BORROWING $134 MILLION

By Paul Sloca ~ The Associated Press

JEFFERSON CITY, Mo. -- Missouri may have to borrow $134 million from the federal government next year to prevent the state's unemployment insurance trust fund from going broke, lawmakers were told Tuesday.

The situation, which surfaced earlier this year, is the result of the state paying out more in jobless benefits than it is receiving from employers.

"It's absolutely a crisis and it has been a crisis since last year," Gracia Backer, director of the Missouri Division of Employment Security, told the House Interim Committee on Employment Security.

A state law prevents the fund from building up large reserves during strong economic periods like the late 1990s. The law also restricts how quickly unemployment tax rates can be changed.

Consequently, the unemployment fund typically runs into trouble when the economy falters.

In 1992, Missouri had to borrow $81.5 million from the federal government to cover unemployment benefits. The fund also was insolvent during economic troubles in 1983.

Backer said there are several things that could be changed to help the fund, including increasing a $500 million cap on the fund to allow it to grow during good economic times. Backer also suggested increasing the amount of tax employers pay into the fund.

"No one component can stand alone to solve the problem," Backer said.

If lawmakers cannot find ways to boost funding for the system, employers will have to pay back the federal loan along with interest, Backer said.

Thanks to a federal loan earlier this year, the state was able to meet its unemployment payment obligations with about $10 million to spare before the end of the year, Backer said.

Business groups such as the Missouri Chamber of Commerce have said that payments from the fund have risen in the past few years. There also have been situations where people fired for drug use have ended up receiving jobless benefits.

Kelly Gillespie, a lobbyist for the chamber who attended Tuesday's hearing, said the issue is going to be important during the legislative session that begins Jan. 8.

Gillespie said business groups would like to see additional protections included in any new proposal on unemployment insurance.

"We knew the infusion of money earlier this year was a good infusion but not a long-term solution," Gillespie said. "We need to take a systematic look at the entire program."

In June, Missouri's seasonally adjusted unemployment rate reached its highest level in eight years at 5.4 percent. In October, that latest month for which figures were available, the state's seasonally adjusted unemployment rate was 4.9 percent.

The fund has been drained despite temporary federal help over the last eight months. In March, Congress extended benefits for up to 13 weeks from federal funds without interest.

But that temporary program, which provided $88 million to Missourians between March and September, was not extended before Congress ended its session earlier this month. The federal aid is to end Dec. 28.

Insurance officials said that 12,500 to 15,600 Missourians who have run out of state unemployment benefits will lose extended federal benefits at that time.

The legislative panel is expected to meet again next week to hear from groups that also have concerns about the unemployment fund, including the business community. Last year, State Auditor Claire McCaskill issued a report also raising concerns about the fund.