There is a structural issue that the federal government must fix, argued Texas Workforce Commission (TWC) Chairman Tom Pauken before a House subcommittee yesterday. “I am very concerned that this is different from the previous recession and that this is a structural issue,” Pauken said. “And until or unless we do something to encourage savings and capital investment in order to create private sector jobs, here and elsewhere, we’re looking at high levels of unemployment for a lengthy period of time.”
Pauken testified before the House Appropriations subcommittee on Business and Economic Development on the economic forecast and the status of the unemployment insurance trust fund.
For March, Texas’ unemployment rate remained at 8.2 percent remaining well below the national rate of 9.7 percent. Texas continues to have the lowest overall unemployment rate of all of the large labor market states. However, the unemployment rate meant the Commission was faced with difficult decisions with the unemployment insurance system, especially in establishing the 2010 employer tax rates. The tax rate includes the following components: general tax rate, replenishment tax rate, deficit tax rate, and the employment training assessment.
In December, the minimum tax rate was raised from 0.26 percent in 2009 to 0.72 percent in 2010. The maximum tax rate, paid by 3.3 percent of Texas’ experience-rated employers, is 8.60 percent, up from 6.26 percent in 2009.
A key element to the unemployment insurance system is the unemployment insurance trust fund. As of April 7, 2010, the UI Trust Fund balance was zero with an outstanding Title XII advance amount of nearly $1.7 billion on October 1, 2010. Federal law currently allows for interest-free borrowing through December 2010 but there is no movement at this time by Congress to extend this provision past December. Pauken noted if Congress does not extend the interest free provision then they are looking at floating roughly $2 billion in bonds.
Bonding, he said, increases the amount of time that employers have to pay a higher tax rate but it also avoids a spike in the rates while businesses are still struggling with more acute issues, like lower sales tax revenue and restricted access to credit.“This is a choice between and among unpleasant options,” he said.
“Absent a change of national economic policy, no matter how well we do here in Texas,” he said, “if you’re looking at persistent unemployment rates of 10 percent or more – and I am afraid that’s what we’re looking at – then we’re going to be in this range for a while.”