With the sobering news Friday that 943,000 Floridians are out of work, the Republican-led Legislature's decision earlier this year to reject $444 million in unemployment compensation from the federal government is looking more shortsighted than ever. Florida's unemployment rate is now 10.2 percent, nearly a full point higher than the national rate of 9.4 percent. What's more, due to years of low unemployment taxes, the state is expected to borrow money from the federal government by year's end to cover just the limited benefits it now provides.
The result is bad on all sides. Florida pays less unemployment compensation to fewer people than other states even as more Floridians could use help. And now everyone in Florida will have to pay more in the future to repay federal loans because the state didn't plan ahead, further stalling the state's economic rebound. Lawmakers should learn from these mistakes.
Florida's not alone. A recent report by the nonprofit investigative journalism group ProPublica shows the country's patchwork of state unemployment insurance funds is all but broken simply because too few state politicians had the courage to collect sufficient unemployment taxes when times were good. Fourteen states have already borrowed money from the federal government to pay unemployment benefits. Another 18 — including Florida — are expected to do so soon.
Florida is spending about $250 million every month on jobless benefits with less than $800 million left in the fund. The state estimates that it will borrow more than $2.7 billion from the federal government by the end of 2010. That total could swell by 2012 to $3.2 billion — roughly equivalent to 5 percent of next year's state budget.
Those loans will have to be repaid, possibly in as soon as two years, or the state's employers will begin to lose a 5.4 percent federal tax credit they currently enjoy. State taxpayers could owe $100 million more for interest.
Legislative leadership used the unemployment insurance fund's pending bankruptcy to justify turning down the additional stimulus dollars for expanded jobless benefits, saying it would lead to higher employer costs in future years. Gov. Charlie Crist argued to take the money, as did Democrats. They contended any additional cost was more than offset by the positives: More coverage for the unemployed as the state weathered the deepest trough of the recession and delaying the need for a federal loan and its interest costs.
The entire debate overshadowed a more fundamental problem: Florida hasn't increased its unemployment tax since 1983, though average wages have increased from $15,000 to $50,000.
Florida has managed by offering anemic unemployment benefits that serve just 32 percent of the unemployed and offer an average weekly benefit of $239. Those benefits are far below states like Pennsylvania, with a 69 percent participation rate, and Massachusetts, with a $411 average weekly benefit. Still, Florida had just a 12-month reserve heading into the recession.
Florida lawmakers did take a small step in the right direction during the last legislative session. They increased the amount of salary subject to the unemployment tax from the first $7,000 to $8,500. But there is no index to inflation — as other states have wisely adopted — and the change sunsets in 2015.
There is no better time to start planning for a better strategy when Florida's economy rebounds. Lawmakers need to bring the taxable wage base to a reasonable and sustainable level, and then index it for the future. Politicians can't stop economic downturns, but they should have the courage to provide immediate help and the vision to plan better for the long term.