State Unemployment Insurance fund feeling the strain but still holding up

A stark indicator of the extent of Oklahoma’s job losses over the past year is the state’s Unemployment Insurance (UI) Trust Fund account. Going into 2009, the Trust Fund enjoyed a very healthy balance of $824 million. Now, twelve months later, the balance has fallen by 40 percent to $489 million. In 2009, the OESC (Oklahoma Employment Security Commission) paid out $559 million in regular UI  benefits, an all-time record and almost four times the amount paid in 2007.

While its balance is clearly dropping rapidly, there are reasons to feel relatively optimistic about the health of Oklahoma’s UI Trust Fund. As this recent Tulsa World article explained, a report by the investigative journalism organization ProPublica rated Oklahoma’s Trust Fund solvent and not in danger of running out of funds to pay benefits over the course of the downturn. By contrast, 25 states have already run out of funds and been forced to borrow from the federal government, while another nine states are likely headed for depletion within six months, according to ProPublica’s analysis.

The optimism assessment for Oklahoma is due both to the Fund’s current balance and to Oklahoma law which provides for a self-correcting funding mechanism known as conditional factors. Conditional factors serve automatically to raise employer UI contributions and to reduce worker benefits when the Fund’s balance drops.  Oklahoma is not in conditional factors in 2010, but according to the OESC staffer I spoke with, in 2011 we are likely to be in the highest or most severe conditional factor, Condition D.  This table explains how employer contributions and worker benefits change in different conditions.This shift into conditional factors in 2011 will have a genuine impact on businesses faced with higher taxes and the unemployed facing reduced benefits.  At the same time, if the state economy is recovering as expected in 2011, there will be fewer unemployed workers affected and businesses will be better able to absorb the increase in UI payments than had these changes taken effect this year.

It’s worth pointing out that Oklahoma avoided shifting into conditional factors in 2010, with the downturn still at or near its peak, in large part because the Legislature last session passed legislation that made the state eligible for an additional $75.9 million in federal dollars for unemployment benefits. As we discussed in this issue brief, these funds were part of last year’s federal Recovery Act and were contingent on Oklahoma approving modest and worthwhile eligibility expansions for Unemployment Insurance that allow the program to serve more part-time workers and workers laid off due to compelling family circumstances. Some states balked at adopting the changes required by Congress to be eligible for the funds, but after some hesitation by the Legislature, Oklahoma got on board by passing SB 1175. The state received its full $75.9 million unemployment modernization payment in late June, bolstering the Trust Fund’s balance enough to avert triggering conditional factors this year.

With high levels of unemployment expected to persist at least through 2010, keeping unemployment benefits flowing to workers unable to find work should remain a priority. Ensuring that extended federal UI benefits are kept in place is one of the urgent goals of the jobs bill currently before Congress, along with continuing to allow laid-off workers to reatin their health insurance. But whatever Congress decides to do, Oklahomans can feel reassured that the state’s funding system for those without jobs is working as intended.