Corporate Cost Control recently attended the UWC convention in Savannah, Georgia.  The topic of the three-day session was UI reform and the Great Recession, which is also referred to as The Perfect Storm.  In 2007, 32.4 billion dollars was paid in benefits, but by the end of 2008, the benefits nation-wide rose to 50.7.  The peak year of 2010, the unemployment benefits rose to 143.2 billion, decreasing to 60.9 billion for 2013.  More than half of the states need to borrow under the Title XII loan provision to enable them to pay the massive number of claimant benefits.  The Perfect Storm appears to be settling as trust funds for several states have moved from insolvent to solvent.

The interest on Title XII loans have dropped from 4.09% in 2011 to 2.39% for 2014 as states begin to repay the debt owed.  States have repaid loan balances through the issuance of bonds or private financing of the remaining balance.  Bonds to repay Title XII loans began with Louisiana and West Virginia in 1987 followed by Connecticut in 1993 and Texas in 2003.  Eight states sold bonds from 2010 – 2013.  The states expected to remain with outstanding loans by the end of 2014 are California, Connecticut, Indiana, Kentucky, New York, Ohio, and South Carolina.

The 2015­­ – 2019 period will be years of recovery for the UI trust funds.  During these years, most states will be able to repay their Title XII loans.  All states were given until 2019, with benchmarks set in interim years, to obtain an AHCM (Average High Cost Multiple) of 1.0%.  After extensive studies were completed, it was determined that states with an AHCM of 1.0% did not need to borrow long term under the Title XII provision.  More states have begun to trend towards indexing their taxable wage base, benefits paid to claimants and their rate schedule to replenish the trust fund more quickly during the downturn of the economy.  During another study conducted by NASWA (ITSC – Information Technology Support Center), it was determined that the oldest computerized benefit system for state agencies was 41 years with the average computer system at an age of 22 years for benefits and 24 years for tax programs.  The old systems, written in computer languages like COBOL, are difficult to maintain and people capable of programming cobalt are retiring with no replacements available.  The Department of Labor is providing funds to each state to modernize their systems.  The many moving parts of the recovery of unemployment will result in a sweep of legislative changes for 2015 and 2016.

So where does that lead us for the 2015 rate year?  We expect to see an increase in contributions paid for the 2015 rate year through increased taxable wage bases with revised rate schedules.   The increases will continue incrementally through 2016 and 2017.  Corporate Cost Control will issue an estimated rate mail dates within the next week.


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