In the July 2020 COVID-19 economy, in which about 55,000 Capital Region residents are applying for unemployment benefits each week, the health of Louisiana’s Unemployment Insurance Trust Fund (UTF) is incredibly important. Heading into the pandemic, the UTF was going strong, and was one of the healthiest in the country, according to a January 2020 report by the U.S. Department of Labor. But the unprecedented number of unemployed individuals has put more stress on the system than ever before, raising several questions for the primary funders of the UTF: employers.
Employers make contributions to the UTF as part of payroll taxes paid for each of their employees. The rate of employer contributions to unemployment insurance is not static; it depends entirely on the projected balance of the UTF, as determined by the state Revenue Estimating Committee (REC) each September. In January of 2020, the UTF had a balance of $1.06 billion and state law set employers’ UTF tax on a wage base of $7,700 per employee. The fund was projected to reach a balance of $1.15 billion this year, which would have lowered the wage base to $7,000 per employee. In addition, maximum weekly benefits for the unemployed would have risen from $247 to $258.
However, the economic impact of COVID-19 has quickly moved the balance in the opposite direction. As of June 16, 2020, the balance of the UTF was down to $618 million, a 41% reduction in six months. This is bad news for businesses already struggling to recover from COVID-19, because when the UTF balance falls below $750 million, the tax wage base increases from $7,700 to $8,500, with a discount on the first 10%. It’s also bad for unemployed individuals, because maximum weekly benefits fall to $221 weekly, the lowest in the nation. To add one more zinger to this unfortunate situation, funding for the state’s Incumbent Worker Training Program, a competitive program from the Louisiana Workforce Commission that repays employers for training to upskill their employees, is lost.
If the UTF falls even further, the REC would have to raise taxes even more. For a UTF balance between $100 million and $400 million, the first 10% discount on the $8,500 wage base is lost. If the balance is below $100 million, the REC can assign a solvency tax up to a 30% increase over the normal rate, or a surtax based on the state’s repayment of debt and interest on unemployment benefits paid.
Colloquially, LWC has said that the weekly burn rate of the UTF is about $50 million. BRAC anticipated that this might slow down a bit when the $600/week federal pandemic unemployment insurance supplement ended at the end of July. Congress has been discussing a (limited) extension of that supplemental benefit, so it remains to be seen whether it will be extended at such a level as to remain more financially lucrative for some than the prospect of returning to work.
Lowering our region’s unemployment rate is important for so many reasons, and among them is the increased costs for Capital Region employers caused by depletion of the trust fund, putting further burden on businesses struggling to keep their doors open. BRAC urges Capital Region employers to be aware of the relationship between the UTF and their unemployment tax liability. It is crucial that the business community monitor this situation and make employment and financial decisions accordingly.
As Senior Vice President of Business Intelligence, Andrew focuses on research and analysis for BRAC’s business development and economic competitiveness teams, providing economic, demographic, and fiscal research to support business expansion and relocation efforts in the Baton Rouge Area and analysis of education, workforce, tax, and other economic and public policy issues.