Moves made on unemployment trust fund, benefit changes

Editor’s note: Roby Brock, with our content partner Talk Business, wrote this report. He can be reached at [email protected]

Two bills that could impact unemployment benefits and employers in Arkansas have worked their way through half of the state legislature.

SB 305 by Sen. Jeremy Hutchinson, R-Little Rock, would allow for bond financing to shore up the state’s troubled unemployment trust fund debt, which currently owes the federal government $343.6 million.

The bill passed the full Senate on Thursday by a 26-4 margin. It now heads to the House for consideration.

Today, SB 305 — which has been amended five times — still gives the Governor discretion to call an election for voter approval of up to $500 million in bonds to pay back the growing trust fund debt. The Governor could call a special election to deal with the situation or tie it to a regular election.

It also now gives the authority for issuing a report on the status of the trust fund and the necessity for a bond election to the Arkansas Finance Development Authority (ADFA), not the state Department of Workforce Services (DWS) as was originally drafted.

DWS and ADFA both approached Hutchinson about the change, he said. Hutchinson said DWS felt uncomfortable with the possibility of assessing a potential bond environment and ADFA has a long history of bond issue experience.

However, Hutchinson expressed concerns to ADFA that it use Arkansas bond firms, not New York-based financial institutions, which he said helped create the financial crisis leading to the unemployment rush on benefits in Arkansas and nationwide.

"The reason I wanted DWS was because they don’t have these relationships with the New York firms," Hutchinson said. "I made my point. We want the money to go to Arkansas. They (ADFA) said they understood that. They can’t commit to anything, but they know our sentiment."

In essence, the bill gives the Governor a tool to "beat the spread" between interest rates on bonds and the interest rate that the federal government may charge to repay borrowed money for the trust fund. The feds typically charge around 4% interest, but a bond issue could result in an interest rate in the 2% range. Hutchinson said it could save the state as much as $25 million after all costs associated with an election and bond issue. He also said the bonds could not be issued if, after voter approval, the bond rate environment does not allow for taxpayer savings.

A provision of the bill assigns an "unemployment obligation assessment" to secure the financing of any approved bond issue. In short, it would add an additional 0.5% to 0.7% assessment on wages paid by employers above current levels. The size of the additional assessment will be determined by the size of the bond issue.



A second bill affecting unemployment benefits is SB 593 by Sen. Jonathan Dismang, R-Searcy. His bill, which is supported by the Arkansas State Chamber of Commerce and opposed by the Arkansas AFL-CIO, proposes a number of changes for workers to receive state unemployment insurance (UI) benefits.

SB 593 would:
• Eliminate a wage indexing provision in current law. That change would not become effective until July 1, 2012.
• Reduce the maximum potential state UI benefits from 26 weeks to 25 weeks.
• Renew a sunset provision to an existing requirement that equalizes the eligibility requirements to get UI benefits in situations of those who quit or are fired from work.
• Increase the requirement to be eligible to receive UI benefits for people that have failed a drug test or been terminated for absenteeism or poor performance.
• Increase the UI eligibility requirements for claimants who refuse alternate suitable work rather than be terminated for poor performance.

Dismang says the changes could save $50-$75 million annually.

"Not doing something is not an option," Dismang tells Talk Business. "It’s the responsibility of the legislature to step up and make some needed changes."

The bill cleared the full Senate today on a 20-8 vote and now heads to the House for consideration.