.floatimg-left-hort { float:left; } .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 12px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 12px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 12px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} After pumping more than $1 billion into Iowa’s economy in 2009 in the form of unemployment checks to jobless workers, the state will require some employers to dig deeper this year to replenish the Iowa Unemployment Compensation Trust Fund.

A 50 percent overall increase in the state’s unemployment tax is expected to generate an estimated $175 million in added revenues for the trust fund this year, and employers that cut the most jobs can expect to shoulder the heaviest additional tax burden. Iowa Workforce Development (IWD) officials hope the unemployment tax increase, the first in eight years, will begin to level out the trust fund’s steep decline by the end of 2010.

Thanks in large part to an indexed unemployment insurance tax system put in place following the farm crisis of the early 1980s, Iowa’s trust fund remains solvent at a time when many states are borrowing from the federal government just so they can continue paying benefits, said Joe Walsh, IWD’s deputy director.

“Our first duty is to make sure that our trust fund is solvent and is sound fiscally so that we can pay benefits to unemployed Iowans who need them,” said Walsh. “We take that charge very seriously, and I think we have an outstanding infrastructure in place to be able to do that.”

With record unemployment claims that began in November 2008 and haven’t subsided, the fund’s balance has shrunk from a seven-year high of $699 million a year and a half ago to about $420 million currently. In 2003, the legislature created the Iowa Reserve Fund, with a $150 million balance that can only be accessed if the trust fund balance is depleted.

Billion-dollar benefit

In terms of its benefit to the state’s economy, the more than $1 billion in unemployment benefits received by Iowans over the past year was “extremely significant,” Walsh said.

“That is money that goes directly back into the local economy,” he said. “It goes to make mortgage payments, it goes to make rent payments. The downturn for our retail economy if this money wasn’t there would be staggering, not to mention the human element of it and the people it protected from losing everything if they didn’t have this money.”

As of Nov. 30, the state’s unemployment system has paid out more than $1.04 billion, compared to a record $475.6 million for all of 2008. The 2009 year-to-date figure includes more than $252 million in Emergency Unemployment Compensation paid with federal funds, as well as more than $68 million in federal economic stimulus payments that workers received as $25 additional payments with each unemployment check paid since March 2009.

Though the trust fund’s automatic balancing mechanism is governed by a complex formula, on average a decrease of $120 million or more in the fund balance will move employers with an experience rating in the system to the next-higher tax table, Walsh said. For 2010, the formula moved all experience-rated employers up by two tax tables.

In addition to using the tax tables, Iowa’s system calculates an employer’s unemployment tax based on its experience rating, the claims history of its workers over the past five-year period, which provides a comparison of the employers’ wages paid into the system compared with claims paid for that companies’ employees. An exception is construction companies, which are placed on a higher rate initially.

A combined effort of the department and legislators in 2009 helped to bolster the fund balance and reduce the overall tax increase needed, Walsh said. Last year, the state received a $70.1 million incentive payment from the U.S. Department of Labor for IWD’s modernization of the unemployment insurance payments system. Legislators moved the entire amount of those discretionary funds into the trust fund.

One of the most significant changes required to receive the federal money was to enact an “alternate base system” that enables unemployed workers with short work histories to potentially qualify for benefits.

“A lot of states have refused to go that route and make those changes,” he said, “But we’ve been able to both expand benefits to workers out there and keep our trust fund solvent and strong at the same time.”

Another change that became effective July 1, though not required to receive the federal incentive, was to extend unemployment benefits up to 26 additional weeks for workers training for high-skill fields such as medical technology.

One of the department’s chief concerns is the length of time people are collecting unemployment benefits, Walsh said.

“We’re just seeing a lot of people who are really having trouble connecting to work,” he said. “A lot of those are people who don’t have demand skills; they may have worked in a manufacturing job that’s dying and they really need to re-skill. Our workforce system is really trying to make an investment in those workers to get them access to upskilling and getting demand skills so they can compete.”

A preferable system

For many states, raising taxes won’t be enough. According to projections by the Labor Department, 40 state unemployment insurance programs are in danger of going broke within two years and will need to borrow an estimated $90 billion in federal money to keep issuing benefit checks. Already, 25 states have exhausted their unemployment funds and have borrowed $24 billion from the federal government, and several more states may seek federal money.

“When you look around the country at other state funds that are bankrupt or that are borrowing money, it makes Iowa’s indexed system preferable,” said John Gilliland, senior vice president of government affairs for the Iowa Association of Business and Industry. The organization represents more than 1,300 business members, which employ more than 300,000 Iowans. “You don’t want your fund to be empty so that it’s not available for individuals who have lost their job through no fault of their own.

“At the same time, when the rate tables change like they will in 2010, it does create a significant increase in tax costs,” Gilliland said. “I guess that’s one of the tradeoffs in our system – employers that have unemployment experience pay significantly more than those that don’t have unemployment experience. In this economy, any increased tax is a negative to job growth.”

The Unemployment Insurance Division has seen a doubling of tax appeals by employers since the rate increase was announced in September, from approximately 1 percent of employers to 2 percent. Though the calculation of the rate is typically “pretty cut and dried,” Walsh said, it’s good for employers to double-check the department “because mistakes can be made.”

Iowa has had a relatively high number of employers who don’t have to pay any unemployment tax because of their favorable claims history, and that will continue to be the case despite the tax increase. This year, about 43 percent of Iowa employers will fall within the zero rate tax table, compared with 46 percent in 2009. The next largest group of employers, about 26 percent or some 18,000 businesses, will pay from 1.1 to 3 percent more. Nine percent of employers’ rates will decrease.

In comparison to many other states, Iowa’s overall unemployment tax increase is relatively low, Walsh said. Hawaii, for instance, has increased its tax by 600 percent. Closer to home, Nebraska, South Dakota and Kansas also had triple-digit hikes in their unemployment tax rates for 2010, at 150, 140 and 100 percent increases, respectively.

How quickly the tax increase brings the trust fund balance to healthier levels depends largely on whether the state continues to see the record levels of unemployment claims it experienced in 2009, Walsh said.

“We expect in the short term to continue to see somewhat of a dip in the balance of the trust fund, and then hopefully, by the end of (2010) I think we’ll see the trust fund balance go back up and hopefully get us back to our pre-recession level,” he said.

IWD’s operational funding is also uncertain. The department, which operates a network of 55 field offices and a one-stop workforce office in each of its 15 regions, took a 10 percent across-the-board budget cut along with most other state agencies in 2009.

Because the agency is approximately 80 percent federally funded, officials have been able to use federal money to fill funding gaps and to avoid cutting staff or closing offices, Walsh said.

“What we’re really concerned for is the long-term effects of these across-the-board cuts, because that federal money is not going to be there forever,” he said. “What’s really important to us is that we avoid having office closings or having to cut staff, particularly in these types of economic times. We want to make sure that our entire state is covered, and that we have offices that are close and convenient for everyone.”

IWD receives approximately $12 million in annual state appropriations, which are primarily used to keep its smaller rural offices open, Walsh said. “We’re proceeding on the basis that we’re not going to have any layoffs or interruptions in service, but this legislative budget session is going to be crucial to that.

“We’re very lucky to have a governor who sees the importance of these workforce centers; he has really gone out of his way to protect the workforce budget. I think he sees that as protecting workers’ abilities when they’re having hard times.”