By Farrell Quinlan
The Arizona Legislature’s recently concluded special session on extending unemployment benefits revealed a number of misconceptions, misunderstandings and misrepresentations on how America’s and Arizona’s unemployment insurance systems work. Because unemployment benefits are governed by the weaving of complex federal and state laws that are designed to reflect certain principles of insurance and federalism, it is no surprise that the news media, elected officials, business owners and the general public were confused and developed certain assumptions that are untrue.
Two of the most broadly held but incorrectly understood aspects of triggering unemployment benefits in addition to the 72 weeks of regular state and federal emergency unemployment benefits are 1) who’s paying for the benefits and 2) who’s getting that money now that Arizona has forgone extending benefits.
There’s NO Free Money
Private-sector employers in Arizona pay 100 percent of all unemployment benefits regardless if the benefits are paid from state or federal accounts. Public-sector or government unemployment benefit liabilities are paid on a pay-as-you-go basis and do not contribute to net balances in the corpuses of the various state and federal unemployment insurance trust funds. Businesses are responsible for funding the state and federal accounts from which regular and extended benefits are paid. When the federal government “covers” extended benefits, the money is taken directly from an account that is 100 percent funded by the federal unemployment tax paid by private-sector employers.
That’s not just rhetoric from a small business advocate. According to latest UI Outlook report from the U.S. Department of Labor’s Office of Unemployment Insurance, Division of Fiscal and Actuarial Services:
Heavy borrowing from the Federal Unemployment Account (FUA) is projected to continue over the next few years. The aggregate loan balance is projected to increase from $40.2 billion at the end of FY 2010 to a peak end-of-year balance of $68.3 billion in FY 2013. Up to 40 states are projected to borrow… Due to the high volume of state loans and increased [extended benefit] payments, FUA and EUCA [the Extended Unemployment Compensation Account] are projected to borrow $26.7 billion from the general fund in FY 2011 and an additional $19.4 billion in FY 2012. The general fund advances must be repaid with interest. Neither account is projected to return to a net positive balance by 2016. [Emphasis added]
Those FUA and EUCA accounts are 100 percent funded by the federal unemployment tax paid by private-sector employers (currently $56 per year per employee). The general fund “advances” are only significant in providing the necessary liquidity to pay these extended benefits. They do not “cover” the cost with “free money” or money paid for by employees through their federal income taxes. These accounts are incurring massive negative balances that the U.S. Department of Labor says must be covered by future federal unemployment tax receipts—and with interest!
No Other State Gets “Arizona’s Money”
The second biggest misunderstanding commonly repeated during the extended benefits debate was the idea that some other workers in some other state would be getting the benefits that Arizona is not accessing. Our unemployment insurance system is not set up like 2009’s federal stimulus program that committed the U.S. Treasury to spend a fixed amount of money and spread it around to those states participating. Instead, extended unemployment benefits are paid based on a state’s underlying unemployment insurance structure and limits. By Arizona not extending benefits beyond 72 weeks, the federal accounts providing liquidity will not accrue more negative balances that must be repaid with interest through taxes on private-sector employers. Moreover, Arizona saved the federal government from needing to add to the $14.3 trillion national debt to loan cash to the FUA and EUCA accounts to cover extended benefits past 72 weeks.
The debate over the extension of unemployment benefits is an important one requiring the careful and considered judgment of our elected representatives in Congress and state legislatures. But that debate must not be distorted by erroneous information and the misreading of fundamental facts. Arizonans out-of-work through not fault of their own and the private-sector businesses responsible to pay taxes to fund unemployment benefits deserve a full and fair debate based on the truth, not misrepresentations.
Farrell Quinlan is state director for the National Federation of Independent Business which has 7,500 small business members in Arizona.
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