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The state is looking down a $2 billion hole to pay back loans from the federal government and get the unemployment trust fund back to a fiscally responsible level.
That's quite an abyss, but the Senate and House took an important first step this month in passing bills to create a Department of Workforce, a Cabinet-level agency, whose director would report to the governor, to replace the Employment Security Commission. Direct accountability has been sorely missing for this agency.
The agency spiraled out of control over the past decade, and no one seemed to notice or care until it was much too late to contain the damage. The situation is a good example of the kind of problems created by diffuse accountability. Lawmakers blamed agency officials, and agency officials blamed lawmakers. Gov. Mark Sanford was on to the problems, but our weak executive form of government gave him little power to do anything but plead his case.
A damning audit of the agency states that agency officials knew as early as 2001 that fund reserves were not adequate to meet the demand for unemployment benefits, but they didn't pursue changes to benefits or the tax structure to prevent insolvency. It also found that the agency didn't give the General Assembly adequate information about the declining trust fund balance, nor did it suggest ways to prevent the decline.
South Carolina had a more than $800 million surplus in its unemployment benefits trust fund in 2000. When the recession began in 2008, that number had dropped to $229 million. We now have borrowed $800 million from the federal government to meet our unemployment benefit obligations.
The state's debt is projected to grow to $1.28 billion by Dec. 31 if the unemployment rate averages 12 percent this year. In addition to repaying the federal loans, the state is responsible for an estimated $350 million in interest, and legislators must find a way to rebuild the unemployment trust fund. To meet federal guidelines, we need an estimated $1 billion for that.
A consultant has recommended the state overhaul the premium system used to cover unemployment benefits. Under one proposal, 53 percent of the state's employers would see premiums stay the same or fall. Employers with the worst records for layoffs and firings could see costs rise to $645 a year for each worker. Companies now pay between $87 and $427 a year per employee.
But increasing the amount of money coming into the agency is just one fix. Lawmakers also can look for ways to reduce the amount of money flowing out of the agency.
South Carolina, unlike most states, allows employees fired for misconduct to collect unemployment benefits. That cost the state $171 million (10 percent of total benefits) between July 1, 2006, and June 30, 2009.
The Senate proposal gives the agency the right to deny unemployment benefits to workers who are fired for illegal drug use. Workers also could be denied benefits for gross misconduct, which includes reckless damage to employer property, employee theft, and criminal assault or battery against a fellow employee.
South Carolina also is one of only seven states to pay benefits to employees who have a job, but are temporarily unemployed because of plant maintenance, reduced work schedule or other reasons. That cost was $100 million from 2006 to 2009.
An important component of the reformbills is getting the Department of Commerce, the agency charged with creating jobs, to work with a new Department of Workforce. Matching out-of-work people to available jobs would be the best solution for our unemployment agency woes.
