Ohio’s unemployment compensation system is broken. It has been structurally insolvent for years, taking in little more than it is paying out even in the best of times.
However, the Great Recession highlighted how large a problem this can be. In fact, at the beginning of 2009, Ohio had enough in the unemployment trust fund coffers to pay just one week’s worth of benefits. Thus, the state was required to borrow over $3 billion dollars from the federal government in order to pay benefits. This led to significant increases in federal unemployment taxes to repay the loan from the feds. At its highest, employers were paying more than $100 extra per employee per year to repay the loan.
Temporary pain relief
To fix the short-term issue — the outstanding federal debt and escalating taxes — the legislature passed a bill last year to pay off the debt, with the state being repaid using a surcharge on employers’ state unemployment taxes. This action provided Ohio employers with a one-time savings of approximately $350 million.
While this eased the financial pain for employers, the structural problems and likelihood that the state would be in the exact same situation during a future economic downturn remained. Simply put, it was the equivalent of giving an individual with a broken arm an aspirin. It provided temporary pain relief, but the underlying structural problems causing the pain still exist.
Little progress since
Since that time, there have been a joint committee, additional legislation and even a stopgap measure introduced at the end of last year to allow for further discussions. This grew into joint discussions between legislative, business and labor leaders this year in an attempt to craft a solution that would make sense and be agreeable to all parties. Unfortunately, while those discussions were beneficial, an agreement could not be reached.
Any solution to fix Ohio’s broken unemployment compensation system needs to be balanced and must address both what is paid into the fund and what is paid out in benefits. Essentially, the key is looking at both sides of the equation, revenue and spending, to truly fix the system.
This remains a significant issue for Ohio’s employers because fixing the system, even if it means slightly higher state unemployment taxes, will provide both stability and predictability for Ohio’s employers.
Failure fix this problem will leave employers in the same situation the next time there is an economic downturn — with the state borrowing from the federal government for benefits and employers facing ever escalating taxes.
Rather than kicking the can down the road for another day, the time to act is now.
Don Boyd is Director of Labor & Legal Affairs of Ohio Chamber of Commerce, Ohio’s largest and most diverse statewide business advocacy group, has been a consistent voice for business since 1893. As the state’s leading business advocate and resource, the Ohio Chamber aggressively champions free enterprise, economic competitiveness and growth for the benefits of all Ohioans.