NC-GFOA 2013 Spring MeetingH4 UI Fund Solvency & Program Changes & Its Impacts on Local

Governments

Rebecca Troutman, NCACC IGR DirectorKarl Knapp, NCLM Policy & Research Director

Ted Brinn, DES Chief of TaxAntwon Keith, DES Director of Unemployment

Administration

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What Is Unemployment Insurance (UI)?

Federal-State partnership– Broad federal guidelines– State-designed program– State pays 100% regular benefits, 50/50 extended benefits,

feds pay 100% emergency benefits

Funded through– Private employers’ payroll taxes based on experienced

rating; also pay federal payroll taxes– Govts, non-profits given option of direct reimbursement

of claims or experienced rated; pay no federal payroll taxes

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What is the Problem?Why Does the System Need to Change?

• Economic recession & high unemployment costs necessitates $2.5 billion federal loan

• Outstanding loan balance triggers escalating private employer federal taxes—from $21/employee 2011 to $189/employee 2019

• Benefits package “richer” than in neighboring states– NC = $535 max weekly; SC = $326; VA = $378

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How Will UI Benefits Change?• Maximum weekly reduced from $535 to $350– Avg. of last 2 qtrs as base, not highest qtr

• Maximum duration reduced from 26 weeks to 20 weeks & tied to unemployment rate

• Requires waiting week for new claims• Good cause provisions eliminated except

domestic violence & military spousal relocation• Suitable work requirements strengthened– Any work after 10 weeks of benefits

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How Will Private Employer Requirements Change?

• Eliminates 0% rate & sets minimum at .06%; maximum increased by similar– Formula not tax rate schedule

• Sets 20% surcharge on all PRIVATE employers & triggers on and off when UI Fund = $1Billion

• Only employers with positive balance eligible for attached claims; limit 1 per employee

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How Will Local Government Requirements Change?

• Each local establishes a UI Account to contribute 1% of its quarterly taxable wages paid employees (salaries capped at $20,900 per employee in 2013) – Cap is indexed and adjusts each year– Counties, cities and state agencies treated the same way

as non-profits are currently• For each employee earning $20,900 or more per year

for 2013, the total local contribution will be $209 per employee per year, until the 1% balance is obtained – $20,900 * 1% * # of employees

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How Will Local Government Requirements Change?

• First quarterly payment made in October 2013, for the July-September 2013 (3rd quarter) of taxable wages

• 3rd & 4th quarterly payments should be smallest of the four quarterly payments

• 1st and 2nd calendar year quarterly payments should be highest payments

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How Will Local Government Requirements Change?

• 100% of claims benefits will be deducted against UI Account, rather than direct billed, beginning with Aug-July 2014 claims year

• There will no longer be an option to pay 120% of claims with appeal rights

• For FY 2014, 1% reserve payment + 2013 claims paid directly = double hit in FY14

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Reserve Implementation ScheduleOct-13 First reserve prepaymentNov-13 Annual claims bill (August-July) sent by DES

Jan-13 Second reserve prepayment

Apr-13 Third reserve prepayment

Jul-13 Fourth (and final) reserve prepayment

Nov-13 DES calculates the 1% reserve requirement as of August 1, 2014, and the difference between this amount and the prepayments into the reserve. DES also deducts the annual unemployment claims (August-July) from the 1% reserve. DES bills municipalities for the amount needed to replenish their reserves.

Jan-15 Replenishment payment due

After Jan-15 Annual billing in November to replenish reserve, with payment due in January.

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FT $20,000, Reserve = $200

2013 2014

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Wages Paid to Employee $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000

Taxable Wages $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000

Prepayment to 1% Reserve $0 $0 $50 $50 $50 $50 $0 $0

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FT $40,000, Reserve = $209

2013 2014

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Wages Paid to Employee $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000

Taxable Wages $10,000 $10,000 $900 $0 $10,000 $10,000 $1,400 $0

Prepayment to 1% Reserve $0 $0 $9 $0 $100 $100 $0 $0

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FT $52,000, Reserve = $214

2013 2014

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Wages Paid to Employee $13,000 $13,000 $13,000 $13,000 $13,000 $13,000 $13,000 $13,000

Taxable Wages $13,000 $7,900 $0 $0 $13,000 $8400 $0 $0

Prepayment to 1% Reserve $0 $0 $0 $0 $130 $84 $0 $0

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FT $40,000, Vacant Jul-SepReserve = $300

2013 2014

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Wages Paid to Employee $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000

Taxable Wages $10,000 $10,000 $0 $10,000 $10,000 $10,000 $1,400 $0

Prepayment to 1% Reserve $0 $0 $0 $100 $100 $100 $0 $0

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Seasonal $6,000, Reserve = $60

2013 2014

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Wages Paid to Employee $0 $2,000 $4,000 $0 $0 $2,000 $4,000 $0

Taxable Wages $0 $2,000 $4,000 $0 $0 $2,000 $4,000 $0

Prepayment to 1% Reserve $0 $0 $40 $0 $0 $20 $0 $0

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