N.H. seeks to use jobless fund to save jobs

Will paying people who are working out of the state’s unemployment trust fund paradoxically stop the fund from hemorrhaging?Yes, say state officials, and they might be right — but to a small degree. The programs won’t save that many jobs, according to skeptics, and will be no more than a Band-Aid on a gaping wound.Two of the Gov. John Lynch’s three-pronged jobs program – which he dubbed “New Hampshire Working” in his Jan. 21 State of the State address — are based on paying unemployment benefits to discourage firing and encourage hiring. “It will help our citizens stay at work if they already have jobs; return to work if they are unemployed; and get ready to work at the jobs of the future,” Lynch said in his speech.While the program appears to be funded at the expense of the trust fund – due to go broke in February – it actually could strengthen it, Department of Employment Security Commissioner Tara Reardon told NHBR. And a few calls to some of the other states that have tried similar programs appear to back her up, but to a small degree.“Stay at Work,” one aspect of Lynch’s program is being tried in other states, often under the name “Workshare.” It allows businesses to cut workers’ hours as opposed to laying them off, while the workers collect benefits for the hours they are no longer working. Companies could cut employees’ hours by as much as half for up to 26 weeks.“We really value this program,” said Jennifer James, undersecretary for workforce development in Massachusetts. “It has stabilized the workforce and saved us money.”Another of Lynch’s proposals – “Ready to Work” would enable businesses to train unemployed workers 24 hours a week for six weeks without paying them while they still collected their unemployment checks.“We have saved $6 million,” said Michael Thurmond, commissioner of the Georgia Department of Labor, about Georgia Works, a prototype for the New Hampshire program. “This has been a big success.”“Ready to Work” also would double the size of the state’s job training fund to expand it to cover the unemployed, not just those with jobs, as it has in the past, but the money would not come out of the unemployment trust fund. Instead, the extra $1 million would be paid through an expected surplus of the Department of Employment Security administrative money, whose source is a fifth-of-a-percent unemployment tax.‘Smarter’ spendingBut even where successful, the programs for the jobless that are under way in other states have only touched a tiny fraction of the unemployed.How many people will participate in these programs in New Hampshire, how much would be paid out and their exact effect on the fund, has yet to be estimated, said Reardon.“We will be spending money, but it will be a lot smarter than we did in the past,” she told NHBR. Reardon called the programs “exciting.”They are more worrisome to David Juvet, vice president of the Business and Industry Association of New Hampshire.“Maybe they are a great idea,” he said. “But we need to move very carefully because the trust fund is depleted, and the employers took a huge hit on taxes.” The state didn’t leave much of a cushion in the past in order to keep taxes low. Thus the $240 million fund was quickly overwhelmed when the recession hit, forcing it to raise both the general unemployment tax rate and the rate base.The 1 percent increase in the tax rate is a lot larger than it seems, considering that the average rate is 2.7 percent. The tax base increased from the first $8,000 of a worker’s salary to $10,000, and is scheduled to rise to the first $14,000 by 2012. That is all in addition to an increased “experience rate” that individual firms have to pay if they recently laid workers off. The average tax per worker is expected to increase by about 70 percent just this year, a calculation based on figures supplied by Pro Publica, a nonprofit public interest journalism Web site. The figures were confirmed by Deputy Employment Security Commissioner Darrell Gates.The state also cut the amount of money it spends on benefits by not paying out the first week of unemployment for all workers except those who remain unemployed for the maximum number of weeks.Despite all the efforts to replenish the state unemployment fund, it is down to its last $18 million and is expected to become insolvent twice this year, starting in February, forcing the state to borrow from the federal government. But the state expects that there will be enough money for it to pay back what it borrowed.At first, this borrowing won’t cost the state a thing. Thanks to the stimulus package, such loans are interest-free and are likely to remain that way for a couple of years. Employers could suffer increasingly larger penalties in their unemployment tax bill if the money isn’t paid back soon – starting with a three-tenths of a percent increase in the funds that aren’t paid back in a year – a rate that eventually could go up as much as five times the current rate.But Gates said the fivefold increase is unlikely, thanks to the tax increases the state has already implemented.So far, the state has been on track: It expected the fund to end the year at $27 million and ended up with $24 million. And it is in a lot better shape than many other states. Pro Publica projects – accurately, said Gates – that New Hampshire will be $80 million in the hole in six months, along with eight other states (including Vermont and Massachusetts). But so far, 25 states are already in the hole – by an average of $1 billion apiece – and many have not taken steps to climb out of it.Honor systemStill, with the trust fund in such a precarious position, is this the time to come up with programs that will pay people who are actually at work?Yes, when the alternative is laying them off wholesale, said state officials.New Hampshire companies that want to participate in the Stay at Work program would have to certify that they were planning to lay people off. They would then instead cut either 10 to 50 percent of an employee’s hours, and the state would pay the portion of benefits for those days when the employee is not working. In other words, instead of cutting a fifth of its workforce, a company could cut a fifth of its employees’ hours, only paying them for four days a week. Workers could then collect unemployment for the day they are idle.“It’s a soft landing for that employee,” said Reardon, adding that it helps employers hang on to trained workers and to maintain their level of services.Companies with collective bargaining contracts would have to get union approval to take part in the program. And those with health benefits and the like would have to continue to pay them, though a company doesn’t have to have benefits in order to participate.But how would the state know that a company was really going to lay off its workers and wouldn’t just be looking at a state-financed way to cut payroll costs?“We rely on them to tell us the truth,” Reardon said.It isn’t as if employers get to participate for free. The benefits paid to those part-time workers would be counted as part of a company’s experience rate, just as it would have if they laid off workers to cut payroll instead. So the program would only hurt the fund if the employers weren’t really planning to lay off workers in the first place.That hasn’t happened in Massachusetts, where the program has been in place for more than five years.“I haven’t heard of one incident of abuse since we’ve had this program,” said James of the Bay State’s Workshare program, which is virtually identical to the one proposed in New Hampshire with a few exceptions: Massachusetts allows a cut of 60 percent of hours, as opposed to the 50 percent limit proposed by Governor Lynch and unemployment benefits increase slightly for those with dependents.Growing popularityIndeed, the major problem with Workshare isn’t that employers are abusing the program, it’s that many weren’t taking advantage of it in the 17 states that currently offer it.According to a New York Times article reviewing the Workshare programs in place across the country last June, “Many companies are unaware of the program’s existence, and few states advertise it,” as opposed to Europe, where governments are using similar efforts to avoid hundreds of thousands of layoffs.But the participation rate appears to be rapidly changing. In Massachusetts, for instance, only 16 companies participated in January 2008, involving some 165 workers. In September 2009, nearly 500 companies were participating, with nearly 10,000 workers involved. Still, there are some 300,000 unemployed workers in Massachusetts.The “Return to Work” program has not been as commonly adopted, and the risk for abuse appears to be greater because the companies that take advantage of it will not have to pay more into the fund. On the other hand, it appears to have more safeguards in place.The idea is to help employers avoid the up-front cost of training employees when they aren’t that productive. Employers have to certify to the state that they actually have openings, and what those opening are. In addition, the six weeks of on-the-job training benefits for workers will be portable. If a worker doesn’t think a company is serious about hiring, he or she could leave the company after a week and spend the other five weeks with another employer. Since the training program is only part-time, the workers are still expected to look for a job when they aren’t working.Reardon said that if employers don’t actually hire, they probably won’t be eligible for the program the next time around.“We’ll be watching,” she saidGeorgia is the only state so far that has any long-term experience with the program, thanks to Commissioner Thurmond, who said, “It was my idea.” Texas recently adopted it two months ago.Thurmond said there has not been a single case of abuse.The proposed New Hampshire program seems to be an exact copy of the Georgia program, only in Georgia trainees were given a $50-a-week stipend to get to work, buy clothes, etc. That stipend, which has added up to nearly $2 million over the year comes from another funding source, not the unemployment trust fund, Thurman said.On the trust fund account, the program appears to be a success, though if you include the stipend and other expenses, the savings – over a six-year period — has been $3.7 million, not the $6 million claimed. Either way, it doesn’t put much of a dent in Georgia’s trust fund deficit, which was $40 million last November.The number of people helped also has been relatively small.Since the Georgia program started in 2003, some 39,000 trainees have been referred and about 12,000 have been accepted. A little more than half of those completed training and slightly more than half of those – 3,505 — got jobs. Some 500 got jobs in the last year.That’s about one-thousandth of the 480,000 unemployed workers in Georgia as of December.Governor Lynch’s “Ready to Work” program is more than a training program. It starts with agencies developing a plan to assess the skills of newly unemployed workers, and to share those results with new employers. But if the worker doesn’t have marketable skills, they can enter the training program.The program won’t begin until summer, when – Reardon projected – her agency’s administrative fund will have enough money due to increased taxes to handle it.Bob Sanders can be reached at bsanders@nhbr.com.