By: State Sen. Greg Goggans
ATLANTA (November 23, 2009) –
Georgia May Seek Federal Unemployment Funds
Georgia Department of Labor Commissioner Michael Thurmond announced this week that the state would likely have to seek federal assistance to meet its unemployment insurance obligations as soon as next month. While those receiving unemployment checks may breathe a sigh of relief, this could mean higher payroll taxes for Georgia businesses. I wanted to take time to explain how unemployment funds work here in Georgia, the recessions’ effect on our current funds, and what a federal loan could mean for businesses across the state.
Facts on Unemployment Insurance
Unemployment insurance (UI) was established during the Great Depression by the Social Security Act of 1935. Today, UI currently runs through a joint federal and state program. Each state operates its own UI Trust Fund, which is used to pay unemployment checks to insured recipients. In Georgia, this trust fund is supported through payroll taxes from employers. Other states, such as Pennsylvania and New Jersey, also collect contributions from employees, though Georgia does not.
These payroll taxes include two components, a federal component and a state component. The federal component taxes 0.8 percent of the first $7,000 earned by an eligible employee, which is used to cover administrative costs for both the federal and state programs. Each state is then allowed to set its own taxable wage base, which must be more than the $7,000 federal base. Georgia’s taxable wage base is set at $8,500, one of the lowest in the nation. That means that in 2008, of the almost $140 billion paid in wages by covered employers, only $33 billion, or 24 percent, was taxable.
For Georgia employers, the tax rate on the wage base is set through an experience rating. Employers that have paid more in taxes than their chargeable unemployment claims will have lower rates than those employers who have paid in less than their chargeable unemployment claims. New employers are charged a rate of 2.7 percent for the first 36 months, and then are eligible for a rate calculation. Employers with a positive experience rating can be charged a rate as low as 0.025 percent while those with a negative experience rating can be charged a rate as high as 5.4 percent.
Recession’s Effect on Georgia’s Trust Fund
The solvency of Georgia’s trust fund has been a growing concern since the recession began. During an economic downturn, two forces affect the trust fund’s solvency. First, as employers layoff employees, less payroll taxes are paid into the fund. At the same time, unemployment rates increase and there is a greater demand for unemployment checks. This is why it is essential for states to build up large trust funds during better economic times.
Solvency can be measured a few different ways, but one of the easiest measurements is called the reserve ratio. This measure provides a way to gauge the potential size of future claims against the fund.
Georgia’s Outlook with a Federal Loan
If a state’s trust fund is deemed insolvent, it is still legally required to pay unemployment checks to eligible unemployed individuals. States may receive loans from the federal government to cover trust fund deficits. As of November 4th, twenty-five states had received loans from the federal government, including Florida, Alabama, South Carolina, and North Carolina. The average total loans received were approximately $823 million.
If states are forced to take a trust fund loan, additional federal UI taxes are imposed on employers. Federal guidelines require that only UI surcharges and general revenue pay interest payments on federal loans. The state is not allowed to use the trust fund balance to make interest payments.
When Georgia’s Unemployment Trust Fund was flush a few short years ago, existing businesses were allowed to skip paying unemployment taxes. Now, with the deep recession, rates for Georgia businesses may be going up. Georgia appears to be the last state in the Southeast to borrow federal funds, helped largely by conservative leadership enacting fiscally responsible spending polices over the last several years to balance these severe budget deficits. We will continue to pursue sound policies that will bring Georgia through this recession to emerge stronger and ready to help bring our state new jobs and new opportunities.
Please remember to contact me in my office on the issues that are affecting you and your area. I am here to represent you and it is an honor for me to work on your behalf. As always, I’d like to thank members of the Senate staff, who contribute regularly to my column.
Sen. Greg Goggans represents the 7th Senate District, which includes Atkinson, Bacon, Berrien, Clinch, Coffee, Echols, Lanier, Pierce and Ware counties and a portion of Cook County.
PRESS RELEASE
For Immediate Release:
November 23, 2009
For Information Contact:
Matt Colvin Communications Associate
matthew.colvin@senate.ga.gov
404.656.0028