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YELLOW SHEET Office of the State Auditor of Missouri |
January 9, 2002
Report No. 2002-01
State unemployment
benefits fund will be insolvent in 2003, forcing state officials to borrow
money and employers to bear the cost
Benefit payments from the state�s Unemployment
Compensation Trust Fund are expected to exceed revenues by $414.4 million in
calendar years 2001 and 2002, leading to the fund�s insolvency. �If insolvency occurs, state officials will
borrow money from the federal government to keep paying benefits, which will
likely increase employer costs.
This audit reviewed the status of this trust fund
to define the factors causing its current instability.� Auditors found four main factors causing the
insolvency: low unemployment tax rates, no requirement that each employer
contribute to the fund, low taxable wage base, and increased benefit payments
with no rise in revenue. �The recommendations
focus on the legislative changes needed to restore the fund�s financial
stability and long-term solvency.
Fund has faced insolvency twice before
Missouri�s
trust fund became insolvent during both the 1983 and 1992 recessions.� In the 1992 insolvency, the state had to
borrow $81.5 million from the federal government to cover unemployment
benefits.� Employers had to repay the
loan plus $3.4 million in accrued interest.�
As a result, legislators changed state labor laws to keep the fund
balance at an acceptable level.� These
legislative changes resulted in an eight-fold increase in the fund from $57
million in 1993 to $491 million in 1998. �But the new laws also restrict the fund balance growth once it
reaches $500 million, which did not allow continual fund growth during good
economic times. �(See page 2)
State�s key indicator of fund solvency falls well
below national average
To
evaluate the fund�s solvency, both state and federal officials use a figure,
known as a �average high cost multiple,� which represents the number of years a
state�s trust fund can pay benefits without additional revenue.� In early 2001, Missouri�s multiple decreased
to .28, indicating the state could only pay benefits for 3.36 months before
needing more revenue.� The national
average multiple is 1.12 and seven of the eight states bordering Missouri also
have higher multiples.� (See page 4)
Employer unemployment tax rates are too low
Missouri
ranked 40th in the nation in the average unemployment tax rate
levied on employers in 2000.� State laws
require employers pay a basic tax rate of 2.7 percent, not to exceed 6
percent.� The minimum tax rate can
further decrease if the employer has few unemployment claims during a year. �In addition, the maximum tax rate does not
always cover some employers� use of the fund.�
One employer now at the maximum 6 percent rate has paid $100 million to
the fund since it first became an employer, but its former employees have filed
$167 million in claims during the same time period.� (See page 5)�
Some
employers do not contribute to fund
State law allows employers whose employees file very
few unemployment claims to eventually pay no state unemployment taxes.� In 2000, 23 percent of the employers did not
pay unemployment taxes.� If state
officials required all employers to pay taxes at a minimum level, the fund
would increase with little burden to the employer.� For example, a .1 percent tax rate charged to the employers not
paying unemployment taxes would generate an extra $1.9 million a year.� (See page 7)
State�s taxable wage base is
lowest allowed
Missouri�s $7,000 taxable wage base is the
lowest federal law will allow.� The
taxable wage base is the portion of employee earnings on which an employer pays
unemployment taxes.� Missouri is one of
11 states with this minimum taxable wage base.�
Sixteen states have indexed their taxable wage base to average wages,
which allows the base to increase as average wages increase.� These 16 states have been more successful in
maintaining adequate fund balances.�
(See page 7)
