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Unemployment Fund Surplus Shows State Was Right to Freeze Rates

Posted by John Regan on Oct 13, 2011 12:08:00 PM

Massachusetts lawmakers who voted to freeze unemployment insurance rates in January endured a torrent of criticism from union leaders who insisted that a rate increase was needed to stabilize the fund used to pay jobless benefits.

Massachusetts Unemployment InsuranceLegislators and the Patrick administration instead agreed with AIM that the Unemployment Insurance Trust Fund was not in danger of insolvency and that the $400 million rate increase would create far more economic benefit in the private sector.

It turns out that the Legislature and the governor were right.

At a time when states such as California, Michigan and Rhode Island are paying hundreds of millions of dollars to borrow federal money to cover shortfalls in their unemployment systems, the overall Massachusetts UI Trust Fund showed a nearly $300 million balance at the end of September. The fund is projected to end 2011 with a reserve of $63 million and Moody’s Analytics projects that the surplus will grow to $718 million by the end of 2012.

The Massachusetts jobless fund emerged from the recession in better shape than those in other states because the commonwealth’s knowledge-based economy proved more resilient during the downturn than the nation as a whole. Unemployment in Massachusetts remained more than a full point below the national average throughout the recession and, at 7.4 percent, remains more than one-third lower than the 12 percent jobless rate in California.

The fund initiated some short-term borrowing from the federal government to cover cash flow during the recession, but the commonwealth paid all the money back and currently owes no interest to Washington. California last week faced an interest payment of $300 million, while Michigan and Pennsylvania had to ante up $100 million each.

The current surplus is welcome news to employers and policymakers, but it still falls short of recommended federal standards for the solvency of an unemployment insurance fund.  That means employers face the prospect of an automatic rate increase for 2012 that would raise UI taxes from the current average of $713 to $879 per employee – a total projected hike of $400 million.

The thousands of member employers of AIM believe that Massachusetts can rebuild trust fund balances to healthy levels without raising rates. Instead of boosting taxes sharply one year, then lowering them the next as the trust fund balance grows, the state could achieve the same outcome by “smoothing the rates,’’ or freezing them at today’s relatively high levels for the next several years.

“The economy remains fragile and the spreading European debt crisis poses a grave threat to Massachusetts. If a rate hike is unnecessary, why would you do it?’’ said Richard C. Lord, President and Chief Executive Officer of AIM.

AIM urges lawmakers and the administration to again make the right call and freeze UI rates for 2012.

 

Topics: Unemployment insurance, Massachusetts economy, Massachusetts Unemployment Insurance

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