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Interim Watch: Unemployment Insurance Fund (In)Solvency

By Charlotte Chinana

The Legislative Finance Committee met in Socorro Thursday to hear not only the latest projections for state revenues, but also the status of the unemployment insurance fund in the wake of Governor Martinez’s partial veto earlier this year of legislation that would have fixed the problem. A panel presentation on the subject pretty much says it all:  “Unemployment Insurance – Where are we headed in 2012? Insolvency, Federal Loans and Employer Contribution Increases.”

Celina Bussey, Cabinet Secretary for the Workforce Solutions Department (WSD), gave a detailed presentation about the unemployment outlook for New Mexico.

According to her office, as of May, the state’s average unemployment rate was 6.9%, and it has been steadily declining over a three-month period.

However, while the overall certified unemployment insurance claims have decreased during that period (from approximately 66,000 to 36,000), the state isn’t seeing a similar overall decline in initial claims being filed on a weekly basis. Moreover, there is a gap between people who are unemployed, and people who are unemployed and collecting unemployment benefits.

Secretary Bussey stated that, since the state trends tend to mirror federal trends – with a lag – there’s a concern that we might see an uptick in the unemployment rate in New Mexico.

Officials from WSD highlighted the fact that unemployment compensation payments have more than doubled by fiscal quarter since 2009, and that during peak periods (over the past two years) daily payments have hit the $1 million dollar mark. While the state had projected to pay out approximately $16 million in benefits for the 2011 fiscal year, the actual figure was closer to $17.2 million.

To address this shortfall, the state is looking into various scenarios, including increasing employer contributions, and taking out a loan from the U.S. Department of Labor). In addition, changes are to the reporting system are being contemplated to identify potential instances of overpayment, while ensuring that work search requirements are being met.

Coincidentally, also on Friday the state Supreme Court put on hold a legal challenge partial veto of HB59 which eliminated a $128 million dollar employer contribution increase  that would have ensured fund would not have run out of money needed to pay certified claims. The court said it was putting the case on hold until the Legislature has a chance to address the issue in this fall’s redistricting special session — assuming that Martinez puts it on the agenda.

As noted in the Fiscal Impact Report (FIR) associated with HB59, the WSD reported that if New Mexico’s unemployment insurance trust fund becomes insolvent, the department will be required to take out a loan from the U.S. Department of Labor. According to WSD, there are currently 29 other states who’ve taken out these types of loans from the federal government.

The timing of such a request could be tricky inasmuch as the Congress and the White House are wrestling with budget concerns of their own these days.

From the risk management assessment, one of the problems with the state’s system is that information is self-reported under an “honor system,” therefore there is no adequate way to cross check details like the federal directory of new hires, as non-reporting of new wages (by claimants) contributes to overpayment rates.

To address this problem, WSD will be implementing a new project, modeled after one in Texas, which will provide more oversight by verifying the work search requirements made by recipients. The state currently requires unemployment insurance recipients to perform at least two new job searches per week. The new program would entail contacting both the claimant for work search information, and the prospective employer to verify that contact had been made.

In order to qualify for unemployment compensation, a claimant must have had “qualifying wages” during the preceding five quarters (or past year and a half) before filing an initial unemployment claim. The actual payments are also calculated using the earnings from this time frame (with an average weekly benefit of $242 – and maximum of $486 per week – before dependents are factored in).

Representative William Gray (R – Artesia) said that he knows industries that are “hurting for commercial drivers” – and asked if people are “applying for the right jobs” – meaning jobs in industries that are currently facing an employee shortage.

While Secretary Bussey stated that the project would focus on “re-employment” – looking at “who’s hiring and how do we match people’s skill sets” — the details about potential training initiatives to place unemployed individuals in sectors requiring certain skills (such as a CDL, or commercial driver’s license) were not addressed during the meeting.

Senator Sue Wilson-Beffort (R – Sandia Park) commented that she would like to “see all sectors hiring… whether it’s our beautiful gas and oil, or whatever” and that from her prospective, people would rather have a job than get enhanced benefits.

According to officials from the New Mexico Workforce Solutions Department, the state needs about $2.6 million per quarter for unemployment compensation to remain solvent, and having funds to cover about two years worth of payments in the fund would be ideal to maintain solvency.



One thought on “Interim Watch: Unemployment Insurance Fund (In)Solvency

  1. “To address this problem, WSD will be implementing a new project, modeled after one in Texas, which will provide more oversight by verifying the work search requirements made by recipients. The state currently requires unemployment insurance recipients to perform at least two new job searches per week. The new program would entail contacting both the claimant for work search information, and the prospective employer to verify that contact had been made.”

    How is this working in Texas? Does this mean that claimants couldn’t get their unemployment paid if the prospective employer didn’t respond quickly? Won’t this be a burden on employers who get many requests a week?