Ohio unemployment fund going from insolvent to broke. What happens next?

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Montgomery County Job Center

Ohio’s unemployment compensation program was poorly funded before the coronavirus pandemic, and now will likely have to borrow from the federal government to keep checks flowing as it’s on track to bottom out within weeks.

Ohio’s unemployment fund shelled out $268 million in the first 16 days of this month, and only brought in $19.2 million, according to data obtained by the Dayton Daily News.

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Payouts are expected to continue rising dramatically, as state officials say jobless claims are nearing 1 million.

Ohio’s unemployment compensation fund started the year with nearly $1.3 billion on hand, according to a U.S. Department of Labor report saying that amount was not nearly enough to weather the next downturn. The report ranked Ohio’s program the seventh least solvent of all the nation’s states and territories.

The balance on April 21 was down to $691.5 million.

“While our latest estimate on trust fund depletion depends on quarterly tax payments received timely, we find that it could be as long as eight weeks,” said ODJFS spokesman Bret Crow.

Federal rules allow states to borrow from the U.S. Treasury at a low interest rate to keep unemployment checks coming. Most states borrowed money during the Great Recession. Ohio borrowed $3.3 billion starting in 2009 and finished paying it off in 2016.

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But since then, state leaders have failed to bolster the unemployment compensation program to be able to handle even routine economic downturns.

“It was not on solid footing,” said Zach Schiller, research director for Policy Matters Ohio.

“We’re in a cataclysmic decline, so borrowing from the feds is not the end of the world,” he said. “But if we had taken steps to make the system solvent, we wouldn’t have to borrow as much or for as long.”

Shoring up the system in the long term would require some combination of increasing taxes on employers, decreasing benefits or adding payroll taxes for workers.

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Schiller has long advocated increasing taxes on employers to bolster the fund. The average tax rate is currently 2.4 percent applied to the first $9,000 of income for each employee. This is below the national average.

The average benefit in Ohio is around $380 a week and can be received for up to 26 weeks, though the average claim is only 14 weeks.

“By and large we have under-funded what are, at most, average benefit levels,” Schiller said.

Interest free loan suggested

Conservative groups and business leaders say that in addition to reviewing benefits, they are open to discussing increasing employer taxes.

“Most business groups have understood that is probably inevitable at some level,” said Greg Lawson, senior research fellow at the conservative Buckeye Institute.

But while that may be a discussion to have some day, he said businesses right now are struggling to survive and can’t shoulder an increase. He hopes federal lawmakers consider replenishing state funds with interest-free loans so employers don’t have to pay tax increases to repay the loan while trying to recover from what he calls a “government-imposed recession.”

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“At this point what has to happen is you have to keep (unemployment) flowing,” Lawson said. “When we’re through the immediate crisis, we’re going to have to look at it.”

It’s not clear how much the state might need to borrow. Unemployment taxes are paid quarterly and since it’s only paid on the first $9,000 per year the first quarter is when the largest payment comes in. The state will get that money this spring, but revenues will almost certainly nosedive after that.

Now not time for reforms

Chris Kershner, executive vice president at the Dayton Area Chamber of Commerce, agreed on the need for an interest-free loan or even the federal government forgiving the loan.

“The business community would be saddled with paying the interest on this loan, therefore if the federal government would provide interest free support, there wouldn’t be an added burden on the business community during this crisis,” he said.

“When the economy has improved, the business community looks forward to working closely with our state legislators on identifying a long-term solvency solution.”

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Under current loan rules, it would be two years before employers would start paying notably more in unemployment costs to pay back the federal loan.

This means there is no reason to rush to reform the system amid a pandemic-weakened economy when people desperately need as much from unemployment as possible, Schiller agreed.

”There is no necessity of immediately solving this issue we haven’t solved over a 15-year period,” he said. “It’s important to know that the fund is going broke, it’s important to understand why that’s happening, but it’s not like we have to scurry to deal with this by tomorrow, or June or even 2020.”