Other views: S.D. must fix UI trust fund problem

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South Dakota’s unemployment insurance trust fund is being drained dry by high numbers of people drawing unemployment benefits out of it.

Last week, Department of Labor Secretary Pam Roberts said the drop in benefit claims her department had predicted for 2010 might not arrive as hoped. Instead, the first two weeks of 2010 saw some of the biggest claim numbers ever: During a recent week in January, 8,831 unemployed South Dakotans claimed a record $2.7 million in benefits from the fund.

At the same time that the fund hemorrhages claims, not enough payroll taxes are flowing into it.

State officials, and the Unemployment Insurance Advisory Council that oversees the UI trust fund, have been overly optimistic in their forecasts for the fund for some time now, resulting in poor predictions that haven’t served the state’s workers, or its employers, particularly well.

The advisory council recently extended a temporary surcharge on employee wages into 2011, but that is a temporary fix that does not address the underlying structural problems of the state’s unemployment insurance system.

The fund’s imbalance is partly due to the recession that hit hard in South Dakota in 2009. But it is also due to a long history of legislative decisions in this state that have kept unemployment payroll taxes low in both good times and bad.

The unemployment system is intended to be countercyclical. It should accumulate significant fund balances in good economic times, so that those monies will be there to pay out during bad economic times. For many years, the South Dakota Legislature got away with keeping unemployment payroll taxes artificially low for businesses, by taxing only the first $7,000 of wages. Only recently did the state begin to increase that taxable base, which tops out at $10,000 this year. Even then, we impose a tax rate that could be as low as 0 percent for some employers, depending on their past usage of the unemployment insurance fund.

By comparison, North Dakota taxes the first $23,000 in wages and no business is completely exempt, since the lowest tax rate is .2 percent, no matter its past usage history

Roberts said the Labor Department won’t seek any legislation during the 2010 Legislature to address the unemployment insurance fund but will, instead, wait until 2011.

That wait-and-see approach is not the leadership that is needed now. We worry that delaying, for another year, any proposal to address the long-term imbalance of the fund is shortsighted. We urge Roberts and the council to be proactive, not reactive, about the UI trust fund and an unemployment crisis that directly affects thousands of South Dakotans.

Tags: other views, south dakota, opinion, editorials, unemployment, fund