Corporate Cost Control attended the UWC convention which was in Kansas City, Missouri this year.   The topic of the three-day convention was funding of the state trust funds in preparation for the next recession.    With constrained funding and limited staffing, the performance standards and integrity measures have suffered.   Although the AHCM is being measured by each state, few states will reach the goals set by the federal government.   More than half of the state agencies are not ready for the next recession from a trust fund perspective.   Taxing structures do not always distribute the burden of unemployment taxes fairly among employers.  Most of the unemployment taxing structures have not been changed for thirty or more years.   The benefit amounts have increased for claimants with little or no change to the available rate schedules for most of the nation.

So what action have state agencies taken since the recession?    Since the recession ended, fourteen states have begun increasing their taxable wage base while others have remained the same for thirty past thirty years, such as California and Arizona.     Two states, South Carolina and New Mexico changed from a reserve ratio state to a benefit ratio state, which usually causes employers a slight increase in taxes for the first few years.   North Carolina still uses the reserve ratio method but added a base rate which was designed to help to fund.     A fixed taxable wage base still exists in many other states such as California who has not increased their taxable wage base since 1983.     Arkansas, Florida, Georgia, Kansas, Michigan Missouri, North Carolina, Pennsylvania, and South Carolina have reduced benefits to less than 26 weeks.   Other actions taken by state agencies was to eliminate the dependent benefits, raised qualifying earnings, changed the definition of misconduct, increase the number of week of employment needed to qualify after being declared ineligible due to misconduct.   With fraud increasing and a limited budget with reduced workers, over half of the states remain insolvent by today’s standards.     map_of_north_kansas_city_mo

Eight states sold bonds to repay their Title XII loans.  As of the end of 2015, $8,300,295 in bonds was still outstanding.    Three states still owe monies under the Title XII loan provision.  California could pay as high as 2.2% for 2016 FUTA taxes.   Ohio employers could pay as high as 2.1%, and the Virgin Islands employers may pay at 3.1%.    All three states have applied for the BCR reduction, which would reduce the FUTA rate by 0.04% (CA), 0.1% (OH), and 1.3% (VI).  Ohio plans to repay their loan and the interest prior to November 10, 2016, which if this occurs, employers will pay at a 0.6% FUTA tax rate.

From an employer perspective, most rates for 2015 and 2016 have declined.    As stated in our Newsletter last month, many employers are paying more in contributions as a result of an increased work force and the increase in more than half of the state taxable wage base.    The claims activity has decreased, resulting in higher trust fund balances but not adequate to bring half the nation into solvency.    At some point, the way unemployment taxes are administered will need to change to keep up with the changing world of unemployment.    We expect the tax rate schedules to continue to stay the same or decrease in most states with a higher taxable wage base.    We will probably see rate schedules increase by 2019 or possibly a flexible taxable wage base will be in effect.   Years ago, during the Great Recession, it was said that the UI system was broken.   It remains broken, and some adjustments will be needed to keep the program in place for future years.

 


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