September 16, 2009 in Idaho

Jobless aid outstrips fund

Idaho, other states borrowing millions to cover benefits
By The Spokesman-Review

Spokane County unemployment up

The unemployment rate in Washington and Spokane County continued to move upward in August, but employment officials are finding reason for optimism.

 Joblessness hit 9.2 percent statewide, up from July’s revised rate of 8.9 percent, state officials said Tuesday. Unemployment was 8.5 percent in Spokane County, up from 8.2 percent in July.

 The largest declines statewide were in professional and business services, which lost 2,500 jobs; retail trade, down 2,400; and education and health services, down 1,800.

 In Spokane County, the bump in unemployment coincided with increases in the number of people working and looking for work – a trend that signals growing optimism about the job market, said Doug Tweedy, regional labor economist with the state Employment Security Department.

 Manufacturing and construction – the two industries hit hardest in the recession – gained ground in August, Tweedy said. Employment also was up in health care, and the education sector held steady last month.

BOISE – Idaho has borrowed more than $51 million from the federal government since July 1 to bail out its unemployment insurance trust fund, despite a 70 percent tax rate increase for Idaho employers this year.

It gets worse: The state expects the borrowing to rise to $190 million by next spring – even with a much larger tax increase likely to hit next year.

“The rate will go up in 2010 and it will go up more than it did this year,” said Bob Fick, spokesman for the Idaho Department of Labor.

But Idaho employers who face a big tax hike during a recession also benefited when Idaho cut its tax rate substantially when times were good as part of an effort to reshape the state’s unemployment system to be more responsive to the market. As a result, this year’s big tax increase still left rates below those paid as recently as 2005 and 2006.

State Sen. John Goedde, R-Coeur d’Alene, who served on the task force that designed Idaho’s current system, said, “I just hope those businesses that didn’t pay additional unemployment tax over the course of the last few years invested it wisely and will be able to afford these higher rates.”

Idaho’s approach is the opposite of that taken by Washington, which in 2005 revamped its unemployment insurance system to focus on stability. The overhaul was “really focused on keeping the fund solvent in good times and in bad, because we know the bad times always come,” said Sheryl Hutchinson, spokeswoman for the Washington Employment Security Department.

That means Washington employers may have paid higher rates in good times, but the result now is a $3.2 billion unemployment trust fund, “which is enough to cover 16 months of benefits in a very severe recession,” Hutchinson said. “We’re in good shape.”

Idaho businesses, by contrast, pushed over the years to freeze tax rates when they would otherwise have gone up, pushing off a reckoning. This year, however, business interests don’t plan to try to block the looming tax rate hike.

“We kinda knew we were in a situation where, given the severity of this downturn, and particularly the severity for Idaho, things really weren’t going to be looking good for this fund,” said Alex LaBeau, president of the Idaho Association of Commerce and Industry. “It’s not on our list as something that we are going to push for legislative amendments.”

This is the first time Idaho has had to borrow to bail out its fund; at least 20 states are doing the same. A provision of the federal economic stimulus bill makes such borrowing interest-free through 2010. Fick said the state expects to be able to pay back the money before the interest-free provision expires at the end of 2010, based on the likely rate hikes.

The system designed by the task force in 2005 requires automatic tax increases to keep the fund solvent, but this year’s 70 percent hike wasn’t enough. With soaring unemployment, Idaho expects to pay out $550 million in federal and state unemployment benefits this year; the highest it ever paid before was $247 million last year.

“We’re talking about doubling it in one year’s time,” Fick said. “This is a severe circumstance.”

The size of next year’s tax hike won’t be known until late November or December.

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