Indiana Businesses Could Face Tax Hike For UI Fund

When it comes to paying unemployment insurance benefits to laid off Indiana workers, Indiana ranks pretty low in terms of the generosity of those benefits, capping them at $390 per week regardless of how much you earned while you were employed. Nonetheless, a change enacted in 2000 which boosted those benefits to the current level was not accompanied by a tax increase on businesses. Now, the unemployment insurance fund is facing a shortfall, which could require a $250 million tax on business to fix. The Star's Ted Evanoff explains:

A shortfall still has developed in the unemployment compensation fund. That's because Indiana raised benefit levels available to laid-off workers to a maximum of $390 a week in 2000, from $288 a week. But the tax paid by businesses into the fund was not increased. One result: The fund now contains about $302 million, down from $350 million in October, and $1.6 billion in 2000.

"We have been giving out more in benefits than we have been taxing,'' said Teresa Voors, commissioner of the Indiana Department of Workforce Development.

The Unemployment Insurance Board will form a study committee to review taxes, benefits and eligibility and make a recommendation on how to bring the fund back into balance, Voors said. "On the current track, the fund certainly will go insolvent. Will that be the latter part of 2008 or in 2009? We don't know,'' said Brian Burton, a manufacturers association vice president who conducted the study. "It all depends on the economy.''

As much as $250 million would have to be raised each year to maintain current benefit levels and end the shortfall, Burton said. That is like putting a new tax on business of almost 1 percent of sales, he said, although the exact amount would depend on layoffs at individual companies. Businesses with more layoffs would pay into the fund at a higher rate.

Can you imagine where the fund would stand if we had fallen into a recession? Back in the 1970s and early 1980s, state unemployment insurance funds in a number of states became insolvent and the federal government had to loan money to the states to temporarily bail them out. The state in this situation took action in a way government is too accustomed to doing business, particularly with government-run trust funds. Spend the money now and worry about how you're going to pay for it later.