Senators seek way to fix unemployment fund
By NANCY HICKS / Lincoln Journal Star
Todd Teut knows what it's like to get a weekly unemployment insurance check. "It's a real help," he said. And he knows what it's like to live without that help. | More Legislature stories |
"That gets rough."
For six months, Teut was among the 44,000 Nebraskans who got weekly checks last year. His was for about half his wages at Goodyear, where he worked for 12 years.
His wife, Heather, still had a job and her check made the payment on their new house, but the unemployment check paid other expenses and kept the couple afloat.
Early last year, Todd Teut took a voluntary six-month lay-off. When it was time for him to go back to work, there was no job for him at Goodyear.
His unemployment benefits ran out at the same time, so finances got dicey. On Saturday, he was testing for a truck driver's license and plans to drive over the road until he can find other work.
Had he known the outcome, Teut said, he would have never taken the layoff, his first ever. And now he knows first-hand the importance of unemployment insurance to help keep families afloat.
He believes senators need to solve the problems of a dangerously low unemployment trust fund this year. The fund is at about $85 million, and dropping.
"We are losing jobs to overseas workers, and we do need it."
Eight states have depleted their trust funds, and Nebraska ranks fourth from the bottom based on the trust fund balance as a percent of total wages, according to the Nebraska Department of Labor statistics. With no changes, it could run out of money by 2007, said Sen. Doug Cunningham, chairman of the Legislature's Business and Labor Committee.
The fund should have about a $225 million reserve to withstand a crisis or deep recession, based on work by Creighton University economist Ernie Goss, Cunningham said.
"We are considerably below that," he said. "It's to nobody's benefit if that fund goes broke."
Cunningham has been working with a group of people representing labor and business interests and said the Legislature will tackle the issue this session.
For the past seven years the state has been paying out more in benefits than comes in each year from employers.
When the fund was flush and the economy was rolling, senators agreed to increase benefits, tying the maximum weekly benefit automatically to the state's average annual wage. The department, under pressure from the business community and Legislature to reduce the fund balance from more than $200 million, lowered employer contribution rates, explained John Albin, attorney for the department.
Then came a recession period and the problems created by the Sept. 11, 2001, terrorist attacks, and the fund continued to drop as the state consistently paid out more in benefits than it raised from the employer tax.
For several years the business community has resisted big jumps in the contribution rate required to get the fund back to a healthy reserve level.
Every year the Chamber of Commerce and business community backed away from increases in the insurance tax, promising to work on the issue the next year, said Ken Mass, Nebraska AFL-CIO president.
"Now it's gotten to the point where something has to be done," he said.
Cunningham hasn't found a solution agreeable to all parties yet, but LB739, introduced last week, likely will serve as a shell for the issue later in the session.
Both labor and business agree there's a problem.
"(The trust fund) is almost broke and needs to be fixed and both sides are going to have to work on it," said Ron Sedlacek, who represents the Nebraska Chamber of Commerce.
"We all understand that unemployment has got some serious financial problems and they do have to be fixed," said John Bourne, business manager of the International Brotherhood of Electrical Workers Local 22. Labor representatives have pledged to work on the problem, he said.
The compromise will involve both sides giving a bit — a freeze on the workers' maximum benefit, plus increases in employee contributions. But employers will have to play a bigger role in getting the fund back to solvency, said Cunningham.
Two key components of the compromise are freezing worker benefits for at least two years and raising the taxable wages (companies pay the unemployment insurance on this amount of the worker's wage each year) from $7,000 to $9,000.
Freezing benefits will save about $2.5 million a year. But raising the taxable wage level from the first $7,000 to the first $9,000 means businesses will pay out another $25 million a year, Cunningham said.
"There is still heartburn with many people on that part of the bill and we will have to work through that." Cunningham said.
Labor representatives appear willing to accept a two-year freeze on benefits.
"We're not in love with freezing the weekly benefits, but we understand the need," said Mass.
But employers believe it is unfair for workers who voluntarily quit their jobs or are fired for good cause to get weekly checks.
"Nebraska is one of less than half a dozen states that pay benefits if you voluntarily quit your job, or are fired for misconduct — for stealing from your employer, for assaulting another employee," said Sedlacek.
But labor representatives say they are adamantly opposed to changing the state system for workers who quit or are fired.
"We're against that. No doubt," Mass said.
Reach Nancy Hicks at 473-7250 or nhicks@journalstar.com.
How the system works
The unemployment insurance fund provides weekly benefits to workers who have lost or quit their jobs. Workers receive half of their weekly wage up to a maximum of $288 (half the average weekly wage in the state) for a maximum of 26 weeks. The maximum benefit goes up each year, tied to the average Nebraska wage.
Nebraska workers who quit or are fired for cause must sit out seven to 10 weeks before they can collect unemployment.
Employers contribute based on their track record in using the fund, with rates set each year by the labor commissioner based on advice from his staff for keeping the fund solvent and on a public hearing where business interests traditionally argue to keep the rate low.
Employers pay the tax on the first $7,000 in salaries for each employee, the federal minimum used by 11 of the 53 jurisdictions with unemployment insurance programs.
Here are the pieces of a compromise as defined early in the Nebraska legislative session.
* Freeze benefits at the $288 weekly maximum. The maximum wage has tended to increase between $8 and $10 each year. Other options include continuing the freeze until the trust fund reaches the $225 million reserve level, and capping the benefit increases for several years after the freeze period so there isn't a big jump in benefits in one year as the system catches up to the new average wage.
* Raise the taxable wage to $9,000. Other options include continuing to increase the taxable wage annually until the trust fund reaches the proper reserve level.
* Lengthen the wait period for people who quit or are fired for cause from 10 weeks maximum to 13. This would save about $4.7 million a year.
* Increase the rate paid by the "negative balance" employers, companies that use more from the pool than they pay in (construction, for example, where workers are often laid off for part of a year),
* Revise the system so it is more sensitive to usage patterns of employers, creating an array of 20 groups with different taxing levels to make payment levels better correspond to usage levels.
* Increase the maximum a worker would have to earn in order to file a claim from $1,600 to $2,500 in a base period (basically half a year)
* Create a solvency surcharge that would take effect when the fund dropped below the reserve level.
* Change the rate setting system, so the Labor Commissioner no longer sets rates after a public hearing. Instead, rates paid by employers would be based on a formula in state law.
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