Georgia’s Unemployment Insurance Trust Fund Broke

Georgia Labor Commissioner Mark Butler said Georgia is in a crisis that has the potential to ruin our state, business and personal finances. That crisis, he says, is the face that the state unemployment insurance fund is broke. In addition, it is in debt to the federal government with interest and payments piling up.

“We must address this issue now or face massive interest payments to Washington,” Butler said in a press release. “The Georgia Department of Labor had been borrowing from the federal government for years before I was sworn in as your Labor Commissioner. This borrowing continues today and is required by state law.”

Butler said he has a plan to get the state out of debt and prevent it from going back into debt with the federal government again, but he needs the General Assembly to approve the changes. Butler outlined the path that he claims got Georgia into this debt.

“In short, the “trust” was taken out of the trust fund. In an attempt to curry favor with Georgia businesses, Gov. Roy Barnes declared a “tax holiday” before Barnes’ failed 2002 re-election campaign. Businesses stopped paying into the trust fund. By the time we hit the Great Recession – and many, many Georgians became unemployed through no fault of their own – the $2 billion Unemployment Insurance Trust Fund had been reduced by $1.3 billion,” Butler said in the release, adding, “Plainly speaking, Georgia had not saved for that rainy day.”

Butler said when unemployment spiked, the remaining $700 million was drained in unemployment benefits. An additional $721 million had to be borrowed as more people filed for unemployment benefits. Without the $2 billion in reserves, the state had no choice but to borrow the money.

“As long as our loan remains outstanding, both federal and state fees will increase,” Butler said.

Last year, businesses paid $42 per employee, per year for federal unemployment insurance. That was raised to $63 per employee in January and will be raised another $21 per year until employers are paying $105 per employee in federal charges. Butler said without legislative action, Georgia’s unemployment premiums will double and he is concerned that will have a detrimental affect on employers hiring people.

“By contrast, our neighbors in South Carolina – who borrowed more than we did – have already begun to repay their debt. Should they eliminate their debt before we do, South Carolina could win an advantage when recruiting new industries,” Butler said. “Georgia must remain competitive. That means making debt repayment a priority. If we buckle down and pay off the loan, we can avoid many of the automatically-generated federal and state fees.”

Butler is proposing a shared sacrifice approach that would reduce future unemployment benefits.

“Nothing in my plan will affect those who are currently receiving benefits. I want to ensure that Georgia stays fiscally conservative so you can put your “trust” back in our trust fund,” Butler said. “The Georgia Chamber of Commerce and the state wing of the National Federation of Independent Businesses, agree that something must be done now. These business leaders are willing to pay their share to end the federal re-payment plan early.”

The state House did not introduce legislation in the last session and the bill passed by the Senate is likely to be challenged on its constitutionality since it did not originate in the House. Butler is asking the Senate to amend an existing House Bill to include some of these solutions.