No one wants to think about—let alone plan for—the next recession when things are going along OK, even if somewhere down deep you know it’s a good idea.
And so it’s no wonder that lawmakers and business groups were not terribly open when—with about a month to go in the 2019 legislative session—Gov. Eric Holcomb’s administration proposed raising the premiums companies pay into the state’s unemployment fund to create a bigger cushion before the next economic downturn.
The Department of Workforce Development proposal came shortly after federal authorities released a solvency report that put Indiana on a list of 24 states that should increase the contributions to their unemployment trust funds. Being on the list means Indiana would not be eligible to borrow money interest-free from the federal government if it ran short on cash to make payments to unemployed workers.
Right now, that’s no big deal. With an economy at full employment, the state’s jobless fund is taking in more than it’s paying out, which means the balance in the fund (currently at more than $800 million) is growing.
But, as Statehouse reporter Niki Kelly reported in The Journal Gazette, that growth has been slowing. And changes in the way the federal government calculates solvency mean it now recommends Indiana keep $1.8 billion in the fund to be prepared for the next recession. That sounds like a tremendous amount of money. But Kelly points out in her story that “during the height of the last recession, Indiana paid out $1 billion, $1.8 billion and $1 billion in consecutive years.”
At the time, Indiana was completely unprepared. For years leading up to the 2009 recession, Hoosier businesses had been paying less into the unemployment fund than the state had been paying out in benefits, leaving the balance in the fund to dwindle. Business leaders and elected officials knew it was happening, but lawmakers didn’t have the will to do something about it until the recession forced their hand.
But by then it was too late to climb out of the hole without help and the state—over several years—borrowed $2.1 billion from the federal government so that it could make its unemployment payments.
Under the gun, lawmakers revamped the system, raising the premiums paid by businesses while reducing the payments for unemployed workers. In addition, the federal government imposed extra taxes on Indiana companies until the state’s loan was paid off.
Today, the state is nowhere near the debacle that preceded the last recession—but it should also take steps to ensure it doesn’t get there again.
There are questions about whether the Department of Labor’s solvency guidelines are appropriate and whether the Indiana DWD’s recommendations for boosting the fund’s balance are the best approach. And we understand the business community’s resistance to shelling out extra money at a time when they want to be investing in their own operations.
But waiting until Indiana is facing another crisis should not be an option. State officials and business leaders should be working out a plan now to prepare the unemployment trust fund for the next recession. There might be no time to waste.•
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