State support for jobless on the rise

According to the Bureau of Labor and Statistics, “In March, the number of unemployed persons increased by 694,000 to 13.2 million, and the unemployment rate rose to 8.5 percent. Over the past 12 months, the number of unemployed persons has grown by about 5.3 million, and the unemployment rate has risen by 3.4 percentage points. Half of the increase in both the number of unemployed and the unemployment rate occurred in the last four months.”

This report was published at the end of March 2009. According to Unemployment Insurance Minnesota, “For the week ending March 28, 2009, 148,700 weeks of regular unemployment insurance and 33,400 weeks of extended benefits were requested.”

The population of the city of Saint Paul, Minnesota, according to the 2000 census was 280,000 persons. That means that during the last week in March, the number of people applying for benefits was more than half the population of the city of Saint Paul.

With this many people out of work, it did not take long for us to find people we could speak with who have lost their jobs. Later in this series, we will hear from those who have become unemployed as they share their experiences in applying for unemployment benefits.

Before we do that, however, the MSR wanted to interview those who can speak for the Minnesota Unemployment Insurance program: Kirsten Morrell (KM) is the spokesperson for Minnesota Unemployment Insurance, and Lee Nelson (LN) is the chief counsel of legal affairs for Minnesota Unemployment Insurance.

MSR: The Programs page for Minnesota Unemployment Insurance lists Kathy Nelson, as the director of Minnesota Unemployment Insurance. Is this position appointed by the governor?

LN: No, it isn’t. Kathy Nelson is a 35-year employee of the department who has held numerous positions in her career.

MSR: So, is she a civil servant?

LN: Yes, she is. She is a classified employee.

MSR: The fact sheet that I received from your office states, “In 2008, 214,000, Minnesotans were paid $885 million in regular benefits and $136 million in federal extension benefits.” If one were to average the annual amount paid, in regular benefits, since the year 2001, would $885 million be on the high end of the average or the low end? Are you able to pinpoint two reasons for either the high or low payouts in 2008? Do you expect an increase in claims for 2009?
LN: It would be on the higher end — the second largest amount in the decade.
MSR: And what would be the year of the highest amount?

LN: I think it would be 2003.

MSR: Do you expect an increase for 2009?

LN: Yes, a fairly good increase.

MSR: Your fact sheet states that unemployment benefits are funded by a state unemployment tax that is paid by employers. The tax is based on an insurance model, with employers’ premiums based on their “experience” with the system.

The tax varies but starts at 0.4 percent of the first $26,000 in annual wages.

In the past year, $792 million was paid by employers. How does your department interpret the word “experience”?

LN: Well, tax rates and employer contribution rates are all set by statute and formulas. The department does not actually interpret it. The misnomer on unemployment insurance is that employers somehow prepay it. It’s actually postpaid.

What happens is that the fund pays out benefits to a former worker. The employer’s tax rate will then increase, so that the fund will be replenished through those increased rates. So, if you have layoffs your rates will increase based on the size of your payroll and all the rest of the statutory formulas.

All employers pay a base rate of four-tenths of one percent. So, if you think about it, if a company goes out of business there is no money left, so you have to have base rates for companies that go out of business, and in the future that rate will be higher.

KM: There are some businesses and industries [for which] unemployment is part of their normal business cycle. Say, the construction industries — they go out in the winter, and this is just a part of what they do.

LN: Seasonal employers will pay higher rates because they lay people off. But, you can have a construction company that pays the absolute minimum if they never lay anybody off. It depends on your history — your “experience.” Rather than classify individual industries, we classify individual businesses. Each gets their own rate.

MSR: Is the “first $26,000 in annual wages” that which the employer pays to the individual employee?

LN: They pay a tax on the first $26,000 of wages paid, kind of like Social Security.

MSR: Is this for individuals?

LN: Yes, for individuals.

MSR: What if a person does not earn $26,000 in a year?

LN: They will pay a tax on the amount that they paid to the individual. Say they only paid the individual $1,000, [then] the tax would be based on that.

MSR: So, you mean that the 0.4 percent will be assessed on the $1,000?

LN: Yes.

MSR: Your fact sheet also states that “the U.I. Trust Fund has approximately $500 million as of December 31, 2008. Under current economic conditions, the UI Trust Fund will remain solvent through the end of 2009.” Does the UI Trust Fund earn interest?

LN: Yes. It’s on deposit in Washington. By federal law it is required to be on deposit in the Federal Unemployment Trust Fund. It currently earns interest at a rate of 4.8 percent.

MSR: These figures were given earlier in the year. Are these figures still accurate? Are you still expecting to be solvent through the end of 2009?

LN: The trust fund, as of last Friday, had $113 million in it. It receives taxes each quarter from employers. We received revenues of approximately $400 million…at the end of the quarter last April, $300 million on July 30, $200 million on October 30, and the next, January 30, about $100 million.

So, we will receive just a little short of $1 billion this year — in the projections — in revenue, but the payouts will continue to increase, and we expect the trust fund to go into what is called permanent deficit, if you will, about Christmas time. It will be in a continual borrowing state.

KM: This has happened in almost all recessions on record where the Trust Fund goes into deficit, which tips off the pretty automatic process of borrowing from the Federal Trust Fund to replenish the funds so that benefits can continue no matter what.

Next week: Bomb threats are among the reasons benefits staff withhold last names.

Karl Johnson welcomes reader responses to nabikj@gmail.com.