fedgazette

Unemployment trust fund also down and out

South Dakota State Roundup

Published March 1, 2006  |  March 2006 issue

If the state Legislature doesn't figure out something fairly soon, the trust fund that pays unemployment claims could get the equivalent of an overdraft notice.

For years, the trust fund remained at or above $45 million. But it ended last year below $20 million and is projected to reach $5 million by the end of 2007.

Employers pay into the trust fund on something of a sliding scale based on past unemployment claims. The rate tops out at 7 percent of the first $7,000 of wages for every worker, with an annual cap of $490 per employee.

There is an immediate stopgap for the declining trust fund; if it goes below $11 million, an automatic rate surcharge of 0.6 percent kicks in on all businesses. Other proposals are looking at making structural changes that affect how much employers pay into the trust fund.

For example, an advisory panel noted that the so-called wage base subject to taxing hasn't been raised for better than two decades; it subsequently recommended upping the amount from $7,000 to $8,500 and then indexing the amount to average wage growth. Upping the top tax rate to 8.5 percent has also been discussed. (For comparison, Minnesota's 2005 wage base was $23,000, and North Dakota's $19,400, with top tax rates for both exceeding 10 percent.)

The state's construction industry, with high-wage jobs and a seasonal work schedule, has been fingered as a major contributor to high-cost claims. But the exact source of the fund decline has not been determined. For example, construction work has always been seasonal, relatively high-paying and stable in terms of employment. As such, the industry has historically been responsible for an outsized portion of claims. It's only recently, however, that the trust fund has become financially unstable.

Despite low overall unemployment, some speculate that the trust fund's imbalance stems from the national recession of 2001, with the state's economy seeing more job turnover (and thus, unemployment claims) along with longer unemployment periods.

The construction industry has also forwarded ideas to help deal with the problem. For example, it has proposed lifting state restrictions on when certain highway construction procedures can take place, which would lengthen the construction season, keep workers working and reduce claims.

Ronald A. Wirtz

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