Lawmakers eye bonds to pay off unemployment compensation debt

By ALEX MITCHELL
Capitol News Service
LANSING— An employee on unemployment is a dent in a company’s finances that never goes away, according to small business owners.
“My payments go up every time someone files for unemployment,” said Mick Raich, president of Vachette Pathology in Blissfield.
Such dents have Michigan lawmakers scrambling to pay Michigan’s $3.1 billion federal unemployment insurance debt. The amount is second only to what California owes and is the largest one per capita in the nation.
“Kicking the can down the road is no longer a viable option, and while there are no silver bullets to resolve the current crisis, doing nothing is a very expensive option,” Wendy Block, director of health policy and human resources for the Michigan Chamber of Commerce, testified at a recent Senate Finance Committee meeting.
Michigan’s debt comes from spending more on unemployment benefits than it collected in employer taxes every year since 2000. To maintain the system, Michigan began borrowing money from the federal government in 2007.
Some states have attempted to deal with their federal unemployment insurance debt by reducing the number of weeks a person can receive unemployment. Michigan, Missouri and South Carolina all reduced their benefits to 20 weeks from 26 weeks. Florida offers between 12 and 23 weeks depending on the state’s unemployment rate.
Michigan may have found a solution in a package of bills sponsored by Sen. Mark Jansen, R-Gaines Township, that aims to settle the federal debt with employer-funded bonds.
“Altogether these changes are designed to ensure that the future legislators are not going to have to deal with this again,” Jansen said.
Raich doesn’t believe in the whole unemployment system.
“We are paying people not to work,” he said. “Everyone I know who wants to work has a job.”
The push for reform has intensified in the face of an additional 3.3 percent penalty that will be applied to Michigan’s debt next year, said Steve Arwood, director of the Michigan Unemployment Insurance Agency. The penalty kicks in after five consecutive years of borrowing from the federal government.
On Nov. 10, Michigan employers faced their most recent round of penalties that will collectively cost them $200 million next year, Arwood said.
Arwood said that the bonds would be collected quarterly from employers. Employers would pay different rates based depending on how often they had to layoff employees in the past.
The bonds would cost employers no more than they are paying now in penalties while helping to eliminate the debt.
“Without knowing all the specifics, it sounds like a good idea,” said Michael Hill, president of Edify North in Holland.
His business has not been affected by penalties too dramatically since it has only existed for two years, he said. But the system could be improved by reducing the duration that benefits can be received as well as increasing the accountability of those receiving the benefits.
Michigan business advocacy groups support the bond plan as a way to get their members out from constantly increasing penalties.
Michigan businesses might not be able to survive much longer in the current system, said Dave Jessup, director of government relations for the Small Business Association of Michigan. They would be subject to an additional $1 billion in penalties over the next 10 years if the system doesn’t change.
“This would hamstring most small business from potential growth, while leaving some wondering if they can even keep their doors open at all,” he said.
Michigan Manufacturers Association President Chuck Hadden, said that eliminating abuse in the system would go a long way toward helping it operate.
“Nothing frustrates my members more than when they fire someone and then that person applies for unemployment,” Hadden said. The employer then has to go through an appeal process while that person continues to receive unemployment.
Since Arwood took over as director of the Michigan Unemployment Insurance Agency, new measures have been implemented to detect fraud, said Delaney Newberry, the Michigan Manufacturing Association’s director of human resource policy.
“Steve Arwood has really streamlined the department,” she said. He implemented a new computer system that is much easier to operate.
The old system was so outdated, people could hardly file unemployment claims, let alone detect fraud, she said.
By eliminating fraud, the system can operate the way it was intended to, Newberry said.
“We need to get back to the original founding principal of the system: benefits to folks who are unemployed through no fault of their own.”
© 2011, Capital News Service, Michigan State University School of Journalism. Nonmembers cannot reproduce CNS articles without written permission.