State: Lost jobs, lost job funds

TALLAHASSEE -- When times were good, the Florida Legislature twice gave a break to business by cutting the tax employers pay for unemployment benefits. Now times are bad, and the fund is shrinking so much that an automatic tax increase on employers may be needed to keep the fund solvent.

Florida is being flooded by demands for help from people experiencing economic aftershocks of the terrorist attacks. The state is hiring temporary workers to handle the flood of unemployment claims in South Florida after paying $648-million in benefits through September, more than the state paid out in all of 2000.

"It's been a very high claims year," says Tom Clendening of the state Agency for Workforce Innovation. Unemployment claims were soaring all over the state long before the Sept. 11 attacks. The state reports a 90 percent increase in average daily claims for unemployment assistance, and 7,500 Floridians have been laid off, most in Central and South Florida. The work force agency received more than 50,000 claims in July alone, more than in any month since 1992.

The unemployment fund balance on June 30 was $2.1-billion. A report to a Senate committee Wednesday warned that if the fund balance falls below 4 percent of the state's total taxable payroll next year, an automatic tax "trigger" will increase employers' contributions to replenish the fund in January 2003. That could mean higher taxes for employers during an economic downturn.

The most recent calculation, conducted this week, showed that the fund is equal to 4.1 percent of the taxable payroll total. Unemployment compensation tax rates are calculated once a year, usually in the fall, and take effect Jan. 1.

Lawmakers and managers of the $2-billion unemployment compensation trust fund say that despite today's 20-20 hindsight, there was no way to anticipate a possible recession.

"Looking back, it's hard to say 'if we'd done this' or 'if we'd done that,' " said deputy work force director Lucy Hadi. "No one was predicting we'd be seeing a projected claims rate of 75,000 claims a month, so it's really not fair to say that."

People who lose their jobs in Florida, and who meet eligibility requirements, can collect a maximum of $275 a week for 26 weeks. Employers pay a maximum tax of 5.4 percent for the first $7,000 in wages paid to each worker, but rates vary depending on a company's claims history and how long it has been in business.

Five years ago, with Florida's unemployment below the U.S. average and the economy humming along, then-candidate Jeb Bush proposed a one-year break in the unemployment tax, calling it "a good idea for Florida business." Democratic Gov. Lawton Chiles quickly embraced a similar proposal, and the 1997 Legislature followed suit by passing a rate cut while increasing payments to unemployed workers by $25 a week.

Two years ago, lawmakers did it again. The 0.5 percent cut in unemployment taxes saved businesses $187-million and was one of the least controversial elements of the largest package of tax breaks in state history, totaling just over $1-billion. Buried in a House analysis of the tax cut is a note of caution: "Reducing the tax reduction in calendar year 2000 could adversely affect the benefit trust fund's ability to pay benefits during an economic downturn."

The stampede to cut taxes on employers had overwhelming support by lawmakers in both parties. Only one member of the entire Legislature voted against it: former Rep. Suzanne Jacobs of Delray Beach.

Rep. Rob Wallace, R-Tampa, this week described his vote for that tax cut as "totally appropriate" relief for small-business owners in robust economic times, and most other lawmakers felt likewise.

Even Rep. Lois Frankel, a West Palm Beach Democrat who has been an outspoken critic of the House's pro-business agenda, voted for the 1999 tax cut after initially missing the roll-call vote. As Frankel now remembers it, a horde of business lobbyists favored the tax cut, and she could not recall anybody urging her to vote against it.

"Look, who are we surrounded by all session? The business lobbyists," Frankel said. "It seemed harmless at the time, but in hindsight, you're supposed to be storing up money for the bad times."

Warning signs had been issued.

In 1996, the Legislature's Office of Program Policy Analysis and Government Accountability warned that the fund's capacity to pay benefits had declined since 1989. The report recommended changes in the way the fund is financed, and said: "The fund's capacity may be inadequate to finance the benefits that would have to be paid if a severe recession developed."

When the report was issued, candidate Bush dismissed it as "fuzzy-headed logic."

Gov. Bush now says it's impossible to predict whether the automatic tax increase will be required on employers.

"I think it's way too premature to know what the status of the economy will be by then," Bush says.

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Lucy Morgan

From the Times state desk