SolvencyAs stated in several of our Newsletters, most unemployment tax rate schedules and multipliers used in the computations have either decreased or remained the same for 2015 and 2016.   Even with the decreases, some employers are still paying higher tax rates from 2012 and 2013 layoffs.  Tax rate schedules and multipliers are based on the solvency of each agencies trust fund balance.    With the exception of California, Ohio, and Puerto Rico, all Title XII loans have been repaid.    The total unpaid balance as of May 9, 2016, was $3,317,574,970.67, of which 2.9 billion is owed by California.    In 2015, Title XII loans were substantially higher.  Connecticut has a small Title XII advance but will maintain its FUTA credit reduction for 2016.  The Title XII loans are decreasing, and the forty-nine of the fifty-three agencies have what was considered in the past as a solvent trust fund

Legislation of the Title XII loan provision was amended in September of 2010.  A twenty-year evaluation of all trust fund balances resulted in the Average High-Cost Multiple (AHCM).   Through the study, the FUTA agency determined that a state could maintain solvency and avoid a Title XII loan during a strong economic downturn as long as they had an AHCM of 1.0.    To help the states build up to this new level of solvency, the AHCM started at 0.5 for 2014 and increased by 0.1 each year until 2019.   All states will be required to have an AHCM of 1.0 by 2019.  If a state reaches he set AHCM for the year, an interest-free loan is available.

As of January 1, 2016, only twenty-nine of the fifty-three unemployment jurisdictions met the 0.6 requirement.  Although an interest-free loan is appealing, many unemployment agencies are unable to meet the requirements of the Department of Labor while other states may be banking on a less severe recession.    If the DOL mandated the AHCM, federal and state taxes would increase dramatically for the states that are unable to reach the requirement.    If a recession does occur in the near future, Title XII loans can be repaid in time with interest through higher taxes and assessments collected from employers.   The simple question may be, do we build our trust fund to this new standard and avoid possible interest charges or do we wait and finance the next recession over time.

Most economists predict another minor recession will occur over the next four years. This is probably accurate since the economy tends to have growth spurts followed by downturns in the market that brings our economy back into a balance.   The Great Recession of 2008 was predicted as a minor downturn in the economy.   Claimants collected for ninety-nine weeks, and the trust fund balances over half the nation became insolvent.

In light of the AHCM, it would appear tax rate schedules would remain high as opposed to most of the nation maintaining or reducing taxes for 2016.   Many of the states who arenot eligible for an interest free loan have reduced their rates in 2016.  For example, Illinois reduced their multipliers for 2016 yet they do not qualify for an interest free loan.     New Jersey just announced a lower unemployment rate schedule for the 2016/2017 rate schedule.   They also do not qualify for an interest free loan.

The unemployment agencies have the responsibility of paying a qualified claimant.   Although 2009 and 2010 were record years for Title XII loan advances, all qualified claimants were paid a weekly check and employers have been repaying the loans with interest.    It will be interesting to watch as the year 2019 approaches to see whether all states will meet the AHCM (which will cost employers money before a recession) or will many of the states decide to finance the next recession as it occurs.

Information can be found at oui.doleta.gov/unemploy/docs/trustFundSolvReport2016.pdf regarding the AHCM by state.


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