Race to the Bottom: Georgia Legislators Approve Severe Cuts to Unemployment Insurance

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GA legislators celebrate end of 2012 session

Georgia state legislators celebrate the end of their 2012 legislative session at midnight on March 29.  Moments earlier a majority voted to enact the harshest cuts to unemployment insurance in the nation.

 

Workers who are laid off after July 1 in Georgia will face the grim prospect of having their already-meager unemployment insurance benefits drastically curtailed.

In the waning minutes of its 2012 session, Georgia’s state legislature last week approved a bill (HB 347) that slashes state unemployment insurance (UI) from the standard 26 weeks to a maximum of 20 weeks, and would further reduce the maximum to as few as 14 weeks depending on Georgia’s unemployment rate.  That rate now stands at 9.1 percent, with Georgia tied for the seventh highest rate among the states.  Fifty Georgia counties – nearly a third of the state’s total – had average unemployment rates of 12 percent or higher last year.  The average duration of unemployment nationally is a near-record 40 weeks, but at most, future jobless workers in Georgia will only be able to receive half of those weeks in regular state benefits.

Georgia joins Michigan, Missouri and South Carolina in reducing to 20 the maximum weeks of state benefits, and Florida, which last year adopted a sliding scale scheme of 12-to-23 weeks.  Georgia’s cuts, the most severe in the nation, take effect for new unemployment claimants beginning July 1.

The bill was pushed through at the behest of the chief business groups in the state led by the Georgia Chamber of Commerce, Georgia Association of Manufacturers and the National Federation of Independent Business.  Lobbyists for the business groups, and their allies in the legislature, devised the scheme of harsh benefit cuts to avoid paying higher taxes and to shift most of the burden for repaying Georgia’s unemployment insurance loans onto jobless workers.

Under the plan, which Governor Nathan Deal is expected to sign, employers will see tiny increases in their unemployment insurance taxes.  According to Atlanta attorney Elizabeth Appley, a worker advocate, 40 percent of Georgia employers will see about a 38 cent tax increase per employee next year.  Unemployed workers, on the other hand, will see their potential benefits reduced by hundreds, often thousands of dollars – when they can least afford it.

It’s not like Georgia employers are paying high UI taxes already.  Between 30 and 40 percent of them have been paying just $2.87 per employee a year.  And Georgia ranked 47th among the states with an average UI tax rate on total wages of only 0.55 percent in 2011.  The chart below shows that Georgia's UI tax rates tracked substantially below the national average during the last two decades.

GA and US average UI tax rates as  percent of wages

Source: US Department of Labor

At the same time, for jobless workers, Georgia’s unemployment benefits program has long ranked at or near the bottom – even before the impact of the newly-enacted cuts – with an average weekly benefit of only $268.  And relatively few jobless Georgians find they even qualify for benefits.  With only 23 percent of unemployed workers receiving state UI benefits last year, Georgia’s recipiency rate ranked 37th in the nation.  The chart below shows that Georgia’s UI recipiency rate has tracked well below the national average.

GA vs US Recipiency Rate

Source: US Department of Labor

Georgia also has the stingiest benefit formula in the country for determining weeks of benefit eligibility.  The average jobless Georgia worker was able to collect only 13 weeks of UI in 2011, the lowest average duration of all states.  This is not because Georgia workers are finding work faster than in other states.  In fact, more than half of all unemployed Georgians exhaust their state UI benefits without finding a job. Georgia’s low 13-week average duration is largely due to the state law that restricts benefits to no more than one quarter of the wages the worker earned in the prior year.  In every other state, benefits available to unemployed workers are a larger percent of their prior earnings.  Georgia workers with low earnings prior to layoff had not been receiving the previous maximum 26 weeks of benefits; and now, neither will any other laid-off workers, no matter how high their prior earnings.

What’s behind this brutal push to slash UI benefits?  Like more than 30 other states, Georgia’s unemployment insurance trust fund is insolvent and has been borrowing from the federal government to make its regular state benefit payments to the increased numbers of laid-off workers during the recession and its aftermath.  Georgia now owes more than $700 million on those loans.  While the vastly higher number of UI recipients due to the severe economic downturn is certainly one factor, the root cause of the state’s UI fund insolvency and debt is the long-standing under-funding of the program.

That under-funding was made even worse at the start of the last decade when Georgia businesses were given a $1.3 billion tax cut courtesy of a four-year “tax holiday” – the largest unemployment tax cut in U.S. history.  In addition, the state suppressed an automatic surcharge on tax rates needed to replenish the low trust fund balance every year since 2003.  The minor tax increases just enacted will not restore solvency to the state’s UI fund, but lawmakers are looking to pay down the federal loan debt by wringing huge “savings” out of the drastic benefit cuts.

Supporters of the plan hailed it as a “compromise”and one could say it involved some give and take -- in this case jobless workers give and the Chamber of Commerce takes.

State Representative Jimmy Pruett, a Republican from Eastman said the bill passed last week was a compromise.  "I don't think anyone is happy about it but it had to be done," he told us. "This is something that was a compromise that had to be made in a way that didn't hurt existing businesses and also didn't dramatically hurt those who are unemployed.”

As for those unemployed who Pruett says are not “dramatically hurt” by Georgia’s UI cuts, he asserts:

“And when the maximum goes to 20 weeks, they can get federal benefits after that, up to 73 weeks."

Well, that may have been what Rep. Pruett and his colleagues were told by business lobbyists, and it would be nice were it true – but it’s not.

The federal benefits extensions available to workers who exhaust regular state benefits expire under current law at the end of December of this year.  Most Georgia workers who are laid off after July 1 this year – and who would only be eligible for a maximum of 20 weeks of state benefits under the new state law – would have no federal benefits available to them under current federal law.  Only a fraction would exhaust their maximum 20 weeks in time to qualify for, at most, six weeks of federal benefits before the end of the year.  And even if Congress renews the federal UI extensions, Georgia’s unemployed would be eligible for fewer of those weeks because they are based on a percentage of available state weeks of benefits.

As it stands now, Georgia workers who are laid off after July 1 will face a cruel and extreme double-whammy:  Substantially fewer weeks of state unemployment insurance, and little or no federal benefits.

Congress can, and should, act before the end of the year to renew federal UI extension benefits. 

In an editorial yesterday, The New York Times assailed Georgia lawmakers for slashing what the editors called “another hole in the safety net” for the jobless.

Georgia is vying with Florida for the title of stingiest state, when it comes to jobless residents.  The Republican-controlled State Legislature passed a bill last week to cut the duration of unemployment benefits from a current maximum of 26 weeks to a range from 14 weeks to 20 weeks, depending on the state unemployment rate.  Florida cut its 26-week maximum last year, to a range of 12 weeks to 23 weeks.

In the aftermath of the Great Recession, more than 30 states have had to borrow from the federal government to meet their obligations to jobless residents. But that is only partly because of the recession.  It is also the result of excessive tax cuts for business — no stinginess there — in the years before the downturn, which deprived many states of revenue to build up their unemployment reserves.

A more responsible approach, for the economy and for families, is to maintain state-based benefits and begin rebuilding the tapped-out trust funds.

As The Times notes, “Congress can help”:

Senator Richard Durbin, a Democrat of Illinois, has sensible legislation that would forgive federal loans for states that rebuild their trust funds over several years.  It has languished in the face of Republican opposition and Democratic unwillingness to force a debate and a vote on the issue.  It is bad enough to be unemployed and worse when the basic safety net is fraying from neglect, ideological opposition and Congressional gridlock.  Unless Congress offers solutions, states will provide less or become more deeply indebted, or both, harming the most vulnerable.

Indeed, Congress needs to take the initiative to implement responsible solutions to restore UI fund solvency while protecting the vitally important insurance benefits needed by unemployed workers.  Updated, rational federal standards are needed to ensure adequate financing of the state-federal UI system, as are meaningful national standards for state benefit durations and amounts.

It’s time to stop and reverse the race to the bottom on unemployment insurance.

 

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