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(April 2001) Even after the longest peace-time expansion, the Kansas unemployment insurance fund is below the
“threshold of solvency” recommended by the Advisory Council on Unemployment Compensation (ACUC) in 1995, according to a recent report from the National
Employment Law Project.
The report HOW ADEQUATE IS THE KANSAS UNEMPLOYMENT FUND?
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Even after the longest peace-time expansion, the Kansas unemployment insurance fund is below the “threshold of solvency” recommended by the Advisory Council on
Unemployment Compensation (ACUC) in 1995, according to a recent report from the National Employment Law Project.
The report Beyond Boom and Bust: Financing Unemployment Insurance in a Changing Economy
by Marc Baldwin, Ph.D. questions the level of preparedness among the states as the US economy shows signs of slowing.
Among the key findings are:
- · In 2000, UI taxes as a percentage of total covered wages were lower than any time in the history of the UI system.
- · Although the UI system should build reserves during economic expansions and spend them down during recessions, many
states have deeply cut taxes and endangered their reserves. Tax cuts and declining tax rates have taken over $47 billion dollars out of the UI system between 1994 and 2000.
- · Unemployment insurance taxes peaked at 1.4 percent of wages in 1978, falling to less than half that at .54 percent in
2000.
- · Only about 40 percent of the unemployed receive UI benefits in the United States. A combination of expanded financial
capacity and improved access is needed to ensure that the UI safety net functions adequately in the next recession, especially for low-wage, part-time and women workers who are least likely to
receive UI under current programs.
- · But if the economy is hit with a more severe recession, the trust funds could be rapidly depleted. In 1982, almost
half the states (22) had to borrow funds to pay unemployed workers
- In contrast to Kansas, thirty states are currently above the recommended solvency threshold. The threshold is based on one of three measures of the adequacy of
unemployment trust funds. The Average High Cost Multiple is based on the average of the three highest annual levels of Unemployment Insurance benefits that a state has paid in any of the previous 20
calendar years. Multiplying the ACHM by 12 tells, roughly, how many months of benefits could be paid if a state experienced a recession like its most recent deep recession. Nationally, the
unemployment funds have increased from about 8 months in 1992 to 11 months at the end of 2000. The ACHM for Kansas is 0.9, for Missouri 0.6, and Oklahoma 1.4.
But if the economy is hit with a more severe recession, the trust funds could be rapidly depleted. In 1982, almost half the states (22) had to borrow funds to pay unemployed
workers.
A second test of adequacy, the High Cost Multiple, tells how large current reserves are relative to outlays in the year since 1958 with highest benefit outlays in a state.
In 2000, the national HCM was .64 translating into about 8 months of benefits at 1975 recession levels. The highest state reserves by this measure were in New Mexico (2.4). Twelve states had HCM’s
equal to or greater than 1.0. The HCM for Kansas was slightly above the national average at 0.7, equivalent to just over 8 months of benefits at 1975 recession levels. The HCM for Missouri was 0.4,
equivalent to 5 months of 1975 benefits. Oklahoma’s HCM was 1.3, equivalent to 16 months of 1975 benefits.
A third measure compares trust to payrolls. This measure is dollars in each state trust fund divided by the dollar value of all payrolls covered by unemployment insurance in
the state. It is expressed as a percentage. It is the highest possible threshold of solvency. In effect, it evaluates trust fund reserves relative to complete wage insurance. It answers the question: how
does the state trust fund compare with the maximum possible demands from a wage insurance system? At the end of 2000, the US average was 1.5 percent, meaning state trust funds could replace one-and-a-
half percent of all wages. Reserve ratios varied from 4.1 percent in Vermont to less than one percent in Alabama, Minnesota, Missouri, Nebraska, New York, North and South Dakota and Texas. The reserve
ratio for Kansas was 1.4; for Missouri 0.7; and 1.8 for Oklahoma.
: Financing Unemployment Insurance in a Changing Economy
by Marc Baldwin, Ph.D. questions the level of preparedness among the states as the US economy shows signs of slowing.
Among the key findings are:
- In 2000, UI taxes as a percentage of total covered wages were lower than any time in the history of the UI system.
- Although the UI system should build reserves during economic expansions and spend them down during recessions, many states have deeply cut taxes and endangered
their reserves. Tax cuts and declining tax rates have taken over $47 billion dollars out of the UI system between 1994 and 2000.
- Unemployment insurance taxes peaked at 1.4 percent of wages in 1978, falling to less than half that at .54 percent in 2000.
- Only about 40 percent of the unemployed receive UI benefits in the United States. A combination of expanded financial capacity and improved access is needed to
ensure that the UI safety net functions adequately in the next recession, especially for low-wage, part-time and women workers who are least likely to receive UI under current
programs.
- But if the economy is hit with a more severe recession, the trust funds could be rapidly depleted. In 1982, almost half the states (22) had to borrow funds to pay unemployed workers
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In contrast to Kansas, thirty states are currently above the recommended solvency threshold. The threshold
is based on one of three measures of the adequacy of unemployment trust funds. The Average High Cost Multiple is based on the average of the three highest annual levels of Unemployment
Insurance benefits that a state has paid in any of the previous 20 calendar years. Multiplying the ACHM by 12 tells, roughly, how many months of benefits could be paid if a state experienced a
recession like its most recent deep recession. Nationally, the unemployment funds have increased from about 8 months in 1992 to 11 months at the end of 2000. The ACHM for Kansas is 0.9, for Missouri
0.6, and Oklahoma 1.4.
But if the economy is hit with a more severe recession, the trust funds could be rapidly
depleted. In 1982, almost half the states (22) had to borrow funds to pay unemployed workers.
A second test of adequacy, the High Cost Multiple, tells how large current reserves are relative to outlays in the year since
1958 with highest benefit outlays in a state. In 2000, the national HCM was .64 translating into about 8 months of benefits at 1975 recession levels. The highest state reserves by this measure were in
New Mexico (2.4). Twelve states had HCM’s equal to or greater than 1.0. The HCM for Kansas was slightly above the national average at 0.7, equivalent to just over 8 months of benefits at 1975
recession levels. The HCM for Missouri was 0.4, equivlaent to 5 months of 1975 benefits. Oklahoma’s HCM was 1.3, equivalent to 16 months of 1975 benefits.
A third measure compareres trust to payrolls. This measure is dollars in each state trust fund divided by the
dollar value of all payrolls covered by unemployment insurance in the state. It is expressed as a percentage. It is the highest possible threshold of solvency. In effect, it evaluates trust fund reserves
relative to complete wage insurance. It answers the question: how does the state trust fund compare with the maximum possible demands from a wage insurance system? At the end of 2000, the US average was
1.5 percent, meaning state trust funds could replace one-and-a- half percent of all wages. Reserve ratios varied from 4.1 percent in Vermont to less than one percent in Alabama, Minnesota, Missouri,
Nebraska, New York, North and South Dakota and Texas. The reserve ratio for Kansas was 1.4; for Missouri 0.7; and 1.8 for Oklahoma.
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