The governor’s position is that taking the $555 million in stimulus money and making the required changes would increase the number of people receiving unemployment benefits and raise the cost of the program. He is right. The cost of the changes is around $76 million per year.
On October 1, by statute, the unemployment insurance trust fund should have an amount equal to 1% of the wage base. In good economic times, this is not a problem. This year, it is a problem. The fund is expected to be some $800 million below the statutory floor.
Any deficit must eventually be made up by a deficit tax on employers. There are stopgap alternatives. For example, the state can borrow $750 million, interest-free, from the Department of Labor for one year. This will leave only a $50 million hole. Employers would face a small deficit tax that would raise the $50 million, and the state would not have start paying interest on the loan until 2010. However, when the time comes to pay the interest, employers will be on the hook for the $750 million in deficit taxes.
In October 2010, the state will face the same dilemma. Another stopgap alternative is that the workforce commission could issue bonds that would bring money into the trust fund. Of course, the state will have to pay the interest on the bonds, and this too will require the imposition of a deficit tax on employers.
If the governor were to decide to take the stimulus package, the amount of the debt would be $555 million less. My personal opinion has been that Texas should take the money and make the changes and save employers a lot of money. I think the governor has gotten himself out on a limb and he needs a way out that is politically feasible.
Here is the way out:
The U.S. Department of Labor calculates that in 2007, Texas lost some $153 million in overpayment of benefits and fraudulent claims. Conveniently, that amount is about twice the annual cost of the changes that the federal government requires in order for Texas to qualify for the $555 million stimulus package. This is not new information. TAB’s Bill Hammond has argued for years that Texas should be trying to collect this money. The losses occur in several ways. One is the “sham employee” fraud. Joe Smith hires his brother-in-law to clean up his garage. The brother-in-law works for three days and then gets fired. He files an unemployment claim that ends up being paid. Another issue occurs when a person who gets a buyout to retire double dips by claiming unemployment benefits. The argument is that the state should be able to recoup this money. In short, Texas is paying out more benefits that it should.
If the Legislature would change the law to prohibit these and other questionable practices, and hire a law firm to collect the money (similar to the collection of delinquent taxes) there would be little administrative cost to the workforce commission and a considerable amount of new money for the unemployment insurance fund. Even if only half of the fraudulent claims results in collections, there would be enough money to pay for the required changes that would allow Texas to qualify for the $555 million.
The problem, of course, is politics. Democrats haven’t shown the slightest interest in addressing these issues (and the Republicans haven’t exactly embraced them either). Perhaps the D’s believe that they have a winning argument for accepting the stimulus package. Why should they let Perry off the political hook?–other than that it is the right thing to do.
In the meantime, that big fat bundle of money is sitting out there for the taking. If the Legislature goes after the fraud, the money collected will be available to cover the $76 million expansion of unemployment benefits and qualify Texas for the $555 billion. Money that is lost to fraud can be recouped year after year, just as delinquent taxes are recovered year after year. This $555 billion is $555 billion that employers will not have to pay. It makes so much sense. The governor can claim that he is eliminating fraud. Everybody can say that they are increasing benefits at no cost to the state. There must be something wrong with this, or else everybody would be on board, but I can’t figure out what it is.
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