Perry to Unemployed: Drop Dead
Mon March 16, 2009 4:34 pm

Aside from responding to hurricanes, I cannot remember the last time Rick Perry did something that resembled leadership. It's just not in him. The rejection of the stimulus package for unemployment compensation was all about political posturing: "I am here today...to stand with Texas employers and the millions of Texans they employ in resisting further government intrusion into their business by opposing the federal government’s push to expand our state’s unemployment insurance program." The math in favor of accepting the money was so overwhelming, and the need is so obvious, that Perry could not make a rational case for rejecting it, except to resort to attacking the federal government. Well, why should anyone be surprised? So many years, so little to show for them.

The rules do require an expansion of the unemployment insurance program in order for the state to receive the entire $555 million that is available. The Legislature must change state law to do three things:

(1) Calculate the base period for unemployment by including the latest completed quarter. The estimated cost is around $212 million over five years (as determined by the Workforce commission).

(2) Allow persons to qualify for unemployment benefits if they voluntarily left their jobs due to spousal violence, disability in their immediate family, or spousal relocation. The estimated cost is $23 million over five years.

(3) Make part-time workers eligible for unemployment benefits. This would cost $146 million over five years. (Alternatively, the state could change its job training provisions.)

The cheapest option adds up to around $382 million over five years, give or take a million here and there. This sounds like a lot of money, but the base budget for 2009-2010 is $170.8 billion. The annual cost of $76+M is not a lot of money, relatively speaking. It's an investment that yields more than half a billion dollars. In addition, as economist Ray Perryman testified, the UI money pumps around $1.2 billion into the state's economy. And there is a value to having the money in the trust fund now and not having to incur any of the costs until later.

The state normally funds unemployment benefits through a tax on the first $9,000 of employee wages. The trust fund for the benefits has both a ceiling ($1.7B) and a floor ($860 million). When the money in the fund drops below the floor, employers are assessed a tax to bring the fund back to solvency. When the money in the fund exceeds the ceiling, employers receive a rebate. In better times, Governor Perry suspended the collection of the tax, allowing employers to retain $90 million. By law, the fund is supposed to be solvent on October 1. Not a chance. It is expected to have an $800M deficit.

The $555.7 million from the stimulus package would go a long way toward replenishing the trust fund. If Texas turns down the money, employers would face a "deficit tax" of 1.09% to help replenish the fund. This represents a $935M hit to the business community. If the Legislature makes the changes, the "deficit tax" drops by 70% to .34%, or one-third of 1%, and the business community is on the hook for just $294M. I don't see how Perry can portray himself as the champion of employers. The state is also going to have to borrow money from the feds. The last time it did so, in 2003, it borrowed $1.4B and had to issue private bonds as well. Guess who gets to pay the debt service? Employers. Not taking the money is a bad deal for the selfsame constituency that Perry claims to be helping.

The ideological (and, to be fair, fiscal) concern is that if Texas does make the statutory changes required to be eligible for the entire $555.7M, the laws will remain on the books and the extra cost will be part of the budget until the $555.7 million runs out, or unless a subsequent legislature repeals them. One option is to have an automatic Sunset provision, but that appears to violate the terms of the stimulus package. It is an open question whether Texas could repeal the statutory changes after the money runs out, or whether a future administration could seek to retrieve the money through a clawback provision. Nobody knows the answer.

The question here, as it has so often been during the years that Republicans have been in charge, is whether the state is going to be governed by ideology or by common sense. Either this money is going to be pumped into the Texas economy, with its multiplier effects, or it is going to languish in some black hole in Washington. Unfortunately, I think that the answer is going to be: some black hole in Washington. Even if the Legislature can muster the votes to pass the statutory changes, Perry is itching to the veto the bills. There is no way the Legislature is going to vote to override him.

The long-term issue here is whether the method that Texas uses to fund unemployment payments is broken beyond repair. The system requires employers to pay when times are bad. That doesn't make sense.

* * * *

I watched all this play out in Dunnam's stimulus committee last Thursday afternoon, a few hours after Perry had announced that he would not take the unemployment insurance money. I walked into the hearing room, and it was immediately obvious that there was a disturbance in the Force. The audience was standing room only, and the air crackled with tension. Dunnam had a written (!) motion, three pages (!), to accept the money. It began: "Based on the testimony, evidence, and information, the Select Committee finds...." It went on to list unemployment figures, the statutory changes required by the feds, and the net gain to the Unemployment Compensation Trust Fund. Phil King was sitting at the far left of the dais, having taken up Dunnam's offer to the membership to attend meetings of the committee. He wanted to speak against the motion. Dunnam was speaking so softly that I couldn't make out what he was saying, except that it was No. I asked King later what he wanted to say. His response was, "I wanted to ask questions about the math. They passed out the motion, and nobody had ever seen it. I wanted to ask about the assumptions in the motion. Our calculation is that we lose the benefit of money by 2014, and it will cost us money after that." I can understand why he thought so; I made the same mistake. The motion said that the costs were figured "per year," but in fact the cost (as I indicated in the post above) was figured over five years.

Crownover was troubled as well. She moved to postpone consideration of the motion until Monday. It failed, and the committee voted 5-1 to adopt the motion, Pitts voting aye. Crownover told me later that Dunnam had said that the committee would not be taking any votes. Two Republican members were absent, and, Crownover said, had not been notified that there would be a vote.

Well, Crownover will get the last laugh. She is the chair of the Appropriations subcommittee on the stimulus, so she gets the last word on Dunnam's recommendations. Well, not quite the last word. That belongs to Pitts--and the House.

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