‘It’s pretty clear that we’re not going to be able to maintain the balance that we had prior to the pandemic,’ a state director said.
The balance in Iowa’s unemployment compensation trust fund since Jan. 1 has shrunk 10% to about $1.13 billion as record numbers of weekly claims have been paid to Iowans who are now jobless because of the economic shutdown caused by the pandemic.
The trust fund’s balance on Jan. 1 was $1.26 billion, according to a U.S. Department of Labor report.
And while it’s not known how much money has been paid into the fund by employers, more than $191 million in claims have been paid to unemployed Iowans so far in 2020, Iowa Workforce Development data shows.
In the past three weeks alone, more than $51.9 million in claims has been paid from the fund to thousands of Iowans who had worked at restaurants, malls, hotels, theaters, dental offices, medical clinics and other places now closed in an effort to contain the novel coronavirus, according to state agency data.
And as more businesses attempt to contain revenue losses, more workers will likely be laid off and file unemployment claims, causing more money to be sucked from the fund.
State officials, worried about the rapid pace at which the trust fund’s balance is shrinking, announced last week that Iowa Workforce Development would resume charging companies for unemployment claims if the trust fund’s balance dropped to $950 million.
As businesses in mid-March began laying off workers because of COVID-19-related shutdowns, the agency said those payments would be waived.
“It’s pretty clear that we’re not going to be able to maintain the balance that we had prior to the pandemic,” Iowa Workforce Development Director Beth Townsend said in an interview with the Business Record. “We’re trying to mitigate the effect of the pandemic after the pandemic is over.”
Townsend said it’s difficult to calculate how many weeks it could take before the fund falls to $950 million or even how long the fund would remain solvent.
In early February, before the pandemic began, a state report estimated the fund would remain solvent for about 18 months if payouts reached levels that occurred during the recession a decade ago. Weekly payments, though, are exceeding those from a decade ago, agency reports show.
Many of the state’s employers are expected to deposit their quarterly unemployment insurance payments into the fund by the end of April, which will provide a cushion. Last year, employers paid an average of $111.1 million into the fund each quarter, state data shows.
“We do not have any predictions at this point regarding the size of the [April] deposit,” Townsend told the Business Record. “We do still have a significant number of employers who continue to operate, so there may not be as big an impact on [first-quarter] deposits as we may see in [future] quarters more impacted by slowdowns.”
In 1983, the trust fund had a deficit of $126 million, which caused Iowa to have to borrow money from the federal government in order to pay claims, according to a 2018 state report. As the economy improved, the fund’s balance grew.
The fund remained solvent during the recession that began in 2009. At that time, more than 30 states were forced to borrow money from the federal government in order to pay unemployment benefits, according to the state report.
Iowa did not have to borrow money from the federal government during the recession to pay unemployment claims, and state officials have said they want to avoid being forced to do it during the pandemic.
Townsend said the $950 million trigger was put in place to help businesses through the recovery.
If the trust fund’s balance continues its free fall and no triggers were in place, the state would be placed in a position where employers were charged higher interest rates, increasing the amount of money they paid into the fund, she said.
“That would be a significant increase in the [unemployment insurance] tax rate for employers, which would make it hard to recover on the other side,” she said. “That’s what we’re trying to do, is put employers in the best position possible during the recovery.”
Mike Ralston, president of the Iowa Association of Business and Industry, said he and many of his group’s members question whether the trigger is needed. Taxes paid by employers generate revenue for the fund “so it will self-heal,” he said.
The association’s bigger concern, however, is how the state will determine who pays the unemployment insurance tax if the fund balance falls below $950 million, Ralston said. The way the association is interpreting the rules, employers who lay off workers before the trigger went into effect won’t be required to pay the unemployment insurance taxes. Those that lay off workers after the trigger is in place will pay the taxes, he said.
“Our concern is equity,” he said. “If our interpretation is right … if [employers are] looking at layoffs, they’ll do it before the trigger takes effect. … Those that do layoffs after the trigger, well, they’ll have a different experience.”
Ralston said the association is waiting for more detailed explanation from the state on what employers would be affected by the trigger.
“We hope it’s a moot point,” he said.
If Iowa begins charging employers the unemployment insurance tax “that would be a hard pill for us to swallow after all of this,” said Jessica Dunker, president and CEO of the Iowa Restaurant Association.
Still, she said, she appreciates that state officials are trying to be transparent about the state of the unemployment trust fund.
“There’s too many what-ifs right now to worry about it,” Dunker said. “If we’re able to open May 1, this won’t happen. …
“I think that this is just their signal to let us know worst-case scenarios.”