Over the past nine months, Georgia has experienced a steady decline in the unemployment rate. This past April, Georgia added 7,800 new nonfarm jobs, making it the third largest job gain in the country for that month. There is no doubt that the state is making its way out of the recession. However, prior to the recent upswing, Georgia, along with the rest of the nation, saw increasing rates of unemployment.
Throughout this period, those without work filed for unemployment benefits. Payment for these unemployment claims came out of Georgia’s Unemployment Insurance Trust Fund, once totaling over $1 billion. Eventually the fund became depleted due to the vast and unpredictable number of claims. One of the goals of the 2012 legislative session was to set in motion a plan to replenish the Unemployment Insurance Trust Fund and return it to solvency. House Bill 347 accomplishes that task.
How Georgia covers unemployment claims
Payments received by those qualifying for unemployment insurance benefits are dispersed from the Unemployment Insurance Trust Fund. Each state has its own trust fund, but it is managed by the U.S. Treasury. The fund consists of fees attained through tax revenue from Georgia’s employers and is calculated based on the number of employees. Specifically, the taxes per employee for the trust fund are:
Federal Unemployment Tax Act (FUTA): Levied by the federal government at a 6-percent tax rate with a tax wage base of $7,000. Currently, Georgia has a tax credit of 5.1 percent, making the tax in 2012 0.9 percent (up to $63 per employee).
State Unemployment Insurance Program (IU): Georgia tax levied on employers at an experience based rate determined by Georgia law with a tax wage base of $8,500.
In December 2009, Georgia’s Unemployment Insurance Trust Fund became insolvent. The deficit was mostly caused by the unpredictable spike in the unemployment rate that occurred throughout 2008 and 2009. Georgia, in accordance with federal law, must continue to pay unemployment benefits despite the increased number of eligible recipients and the depletion of the Unemployment Insurance Trust Fund. In order to continue making payments, Georgia, along with many other states, accepted a loan from the federal government. This loan is designed to assist states in making payments to unemployment benefit claimants despite the lack of funds in the Unemployment Trust Fund. Georgia initially took a loan of $416 million in December 2009, which has since increased to the current amount of $746 million.
Similarly, Florida has a balance of $562 million and South Carolina owes $782 million. As the unemployment rate begins to show signs of improvement, Georgia is looking not only to pay back the federal government but also restore the Unemployment Insurance Trust Fund.
Georgia has every incentive to reduce the trust fund debt as soon as possible. The state owes interest yearly and has budgeted $44.2 million over two years in interest. Additionally, the federal rate rises automatically until the debt is repaid. In order to accomplish these goals, The Georgia General Assembly outlined a method for this restoration with House Bill 347.
Next week: Provisions of HB 347
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