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Posted by: rlaccmarcom on Wednesday, January 19, 2011
Government Affairs Update

Unemployment Insurance Trust Fund

Week two of the state legislature has begun and for the most part committees continue to get organized while deferring bills for a few weeks to allow legislators more time to review and form opinions.

With few bills to consider, most of the House committees are taking up the issue of whether to live stream their meetings. I believe that the general consensus will be to approve live streaming although there is some push back from members who believe that this would hinder open discussion of the bills. Also, one House member expressed his frustration that the State spent hundreds of thousands of dollars installing video streaming equipment without first asking the House if they wanted to enable live streaming. The House will be alone in live streaming since the Senate decided not to participate. What seems so odd is that the newly renovated Big Mac building, which the state spent millions to refurbish and equip last year, is not wired for live streaming. So, committee meetings in the Big Mac will not be recorded.

If you are interested in watching either live or archived videos of committee meetings or the house legislative session go to www.arkansashouse.org/house-media/videos.

This week the Arkansas State Chamber kicked off their weekly legislative lunches. Following an address by Speaker of the House Robert Moore, the Chamber provided an update on one of the major issues facing the legislature in 2011 - the unemployment insurance trust fund.

Historically, the State Chamber has taken the lead on working with labor groups in Arkansas to negotiate mutually acceptable legislation on unemployment related issues. In 2011, this issue has proven to be a monumental task. Arkansas is one of more than 40 states that had to borrow money from the federal government to pay unemployment benefits to out-of-work Arkansans. To date, Arkansas has borrowed $330 million, which is minor considering the federal government has loaned the states more than $40 BILLION to pay for unemployment benefits. For a state like Arkansas though, $330 million is a major obligation that has serious ramifications for employers within the state.

So far, the federal government has loaned this money to the states interest free. However, the zero percent interest policy expires on January 1, 2011. Unless Congress passes legislation in the next year, states will be required to make their first interest payment on the loan by September 2011. As part of the repayment process the federal government is going to increase the effective federal unemployment tax rate from 0.8% to around 1.3%. This tax is charged on the first $7,000 paid to each employee. For example, if a small business employs 10 people it will pay an additional $350 per year in 2011 that will go to the federal government to reduce the borrowed amount. In looking at the entire state, Arkansas has civilian employment of 1,244,400 and applying the additional 0.5% in federal unemployment taxes to each employee would increase the tax burden on employers by more than $43 million in 2011. These additional funds will go toward making interest payments on the loan. If the state does not take action to reduce the outstanding debt the federal government will continue to raise the net federal unemployment tax rate until all of the principal and interest on the loans are repaid.

A few states have opted to issue bonds to repay the federal loans since the interest rates the states can receive on bonds is less than the rate the federal government is charging (3% for state bonds versus 4-5% charged by the government). This option is being discussed in Arkansas, but questions remain whether it would require a vote of the people or if the legislature can make that decision. This decision will ultimately come down to the revenue stream that is pledged for repaying the bonds. If the revenue stream is a tax then it would require a vote of the people. If the revenue stream is considered a "fee" then it might be possible to sell bonds based on legislative action. Bonding is an issue that will require significant research and a lot of political soul searching for legislators.

Raising unemployment taxes is one way to repay the trust fund. Another is to reduce the amount paid out of the trust fund by either reducing benefits or reducing the number of unemployed workers. Everyone agrees that returning Arkansans to work is the best option to begin addressing the unemployment trust fund challenges. Reducing unemployment benefits does not appear to be a possibility because the federal law passed just prior to Christmas last year that extended unemployment benefits for thirteen months included a provision that prevents states from reducing unemployment benefits. When the question was asked if Arkansas had to abide by these federal rules, it was humorously noted that, "This is a federal law, which trumps state law every time. That question was settled in 1865."

In summation, there is no easy solution and fixing the problem will take time and sacrifice from all parties. We will update you as this issue develops.

My Experience in Little Rock - Take #2

Last week started with a nasty snow storm in central and south Arkansas that made traveling around the Capitol city treacherous. Now the weather report is calling for snow and ice on Wednesday/Thursday in Northwest Arkansas. This should make for a fun trip back home on Thursday. Mother Nature has not been kind so far this session.

The TEA Party was in the Capitol today and I am going to post some pictures on Facebook for those that are interested. They probably had 20-30 supporters in the Capitol Rotunda this morning.

I am still holding the line against the "Session 17" although it has to be through dumb luck instead of a calculated attempt to watch what I eat and maintain an exercise regime. For example, at the State Chamber reception tonight one of the items on the buffet was some sort of glazed bacon. I didn't know there was a way to make bacon MORE harmful to your cholesterol level, but the State Chamber found a way. Kudos to them by the way - it was delicious.

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