Unemployment, health care among top state issues

Fiscal conditions will dominate this year's state legislatures, according to the annual forecast of top policy issues released by the National Conference of State Legislatures (NCSL) on Dec. 17, 2008. Balancing state budgets tops the list, but dominant themes in state legislatures across the country will include addressing shortfalls in state unemployment compensation funds and determining how best to provide health care for the uninsured, issues that should concern employers.

"State legislatures are facing the worst fiscal conditions we have seen over the 30-plus years," said William Pound, NCSL executive director. Current economic conditions already have forced many states to cut or scale back programs. States will have to close a $97 billion budget gap during the next 18 to 24 months, the NCSL estimates.

Shrinking state revenues will squeeze all aspects of state government. Further, more bad economic news is reported almost every day, so state fiscal conditions can be expected to worsen.

This means that new programs in a majority of states likely will be set aside as lawmakers try to continue funding essential state services.

For example, an immediate challenge for states in 2009 will be to maintain current health programs, especially programs aimed at covering the uninsured.

$97B Total states' budget gap officials must close within two years.

By Joanne Deschenaux, J.D., SHRM senior legal editor.

RELATED ARTICLE: Unemployment Trust Funds in Trouble

States pay for unemployment benefits through employers' payroll taxes. These taxes are deposited into the federal Unemployment Trust Fund with separate accounts for each state and territory. Many accounts face shortfalls as a result of increasing claims and decreasing payroll taxes caused by job losses.

California, Indiana, Michigan, New York and Ohio have less than three months' reserves to pay unemployment benefits. Eight other states have reserves of less than six months, and the U.S. Department of Labor recommends that states have at least one year of reserves. Close to 4 million unemployed workers are currently receiving unemployment benefits, a level not seen since 1983.

The shortfalls may result in tax increases and reduced benefits.

Gov. Arnold Schwarzenegger, R-Calif., has called a special legislative session to address the deficit and consider an economic stimulus plan. The governor is calling for a reduction in unemployment benefits and a tax increase on business.

Michigan, a state that has already borrowed substantially from the federal government to maintain unemployment insurance, implemented a solvency tax in January. The tax applies to negative-balance employers at a cost of up to $67.50 per employee per year. If the state hasn't paid its federal loans in two years, all employers may see their unemployment tax rate increase to approximately $22 per employee per quarter.

"The only way around tax increases is to pass and implement cost-saving reforms like a waiting week, tightened qualification requirements and better overpayment collection," according to Wendy Block, a spokeswoman for the Michigan Chamber of Commerce. Wisconsin has passed a reform bill increasing wages subject to the payroll tax, starting in January, from $10,500 to $12,000--the first increase since 1986.

By.Joanne Deschenaux