Arizona Hesitant to take Stimulus Money to Expand Unemployment Benefits

PHOENIX (By Erin Zlomek, Arizona Republic) March 8, 2010 — The federal government wants to close a gap that has tripped up legions of jobless Americans. It is offering states emergency money to update their unemployment-insurance programs and allow more out-of-work people to qualify for relief.

Arizona has yet to take the offer - $150 million in American Recovery and Reinvestment Act funds that could admit 24,000 more people to the state's unemployment-insurance program each year, for the next seven years. The assistance primarily would help low-wage earners, part-time workers and people who work sporadic or seasonal jobs.

There would be no cost to the state, employers or taxpayers during that time.

Accepting the money would require Arizona to loosen the entrance criteria to its unemployment-benefits program, which is one of the most restrictive in the country. Many laid-off workers from the state's once-booming retail and construction industries could be rolled into the program for the first time. All benefits recipients must be actively looking for work and have lost their job through no fault of their own.

Earlier in the legislative session, state lawmakers declined to consider a bill making the adjustments necessary to accept the funds. The issue is likely to resurface attached to another bill in the coming weeks.

It faces opposition from business lobbying groups because of the potential for future costs. If lawmakers don't repeal the changes after seven years - or whenever the federal money runs out - Arizona employers would pick up the tab via their unemployment-insurance taxes.

Labor economists, however, support the changes, saying the benefits rules would be a better fit for the 2010 workforce.

Thirty-two states accepted the money last year and the changes can be rescinded down the road to avoid a business-tax increase.

Unchanged since 1935

The formula Arizona uses to distribute jobless benefits has not changed since it was created in 1935, even as other states made updates. As a result, the percentage of unemployed residents here who receive benefits is below the national average.

Women, especially single mothers, are often excluded under the original formula because they tend to take part-time jobs for family reasons, according to a 1995 report from the National Commission for Employment Policy.

The formula also hurts construction-trade workers who finish a project and may not work again until they are hired onto another job months later.

"I get aggravated over it, I won't lie," said Phoenix resident Raymond Rowe, who was laid off from a full-time job as a pipefitter and a part-time job stocking shelves at Walmart last year. The 65-year old Vietnam veteran doesn't qualify for jobless benefits because his income wasn't spread out enough over the past 15 months, a quirk of the 1930s-era distribution system.

Rowe now relies on Social Security to pay his mortgage. The check comes two weeks after the mortgage is due, which has caused him to rack up months' worth of late fees since losing the two jobs.

When the unemployment-insurance program was created during the Great Depression, it was designed to support workers of that era. Payments were calculated based on how much a worker earned each quarter during the first 12-months of their most recent 15-month employment history, also known as the base period. The system supported male breadwinners of families who held regular full-time jobs, according to the employment commission's report.

Today, the labor market has shifted. Many working families don't have a single breadwinner. Occasionally, two members of a household will work part-time jobs to earn the equivalent of one full-time salary.

Labor economists started a movement in the 1990s to implement an "alternative base period" that would take into account a laid-off person's most recent work history and remove some of the barriers. The stimulus funds made available last year was an effort by Congress to get states to switch to the modernized formula.

Roughly 6 to 8 percent more people are admitted to the unemployment-insurance program under the updated guidelines, according to economist Wayne Vroman of the Urban Institute, a nonpartisan economic and social-policy research group based in Washington, D.C.

The maximum jobless benefit in Arizona is currently $265 a week.

Deal on the table

States have until August 2011 to apply for a cut of $7 billion of Recovery Act money called "unemployment-insurance modernization funding."

The amount of money available to each state is based on the size of its workforce. Arizona is eligible for $150 million. Thirty-two states have taken advantage of the funding.

States must update their benefits-distribution formula in order to receive a one-third of their share of the money. To get the rest, they must meet two of four criteria that would admit more people to the program. Those options include:

• Extending benefits to people looking for part-time jobs.

• Extending benefits to people who left their jobs for compelling family reasons, such as domestic violence or disability of a family member.

• Increasing benefit payouts $15 for each dependent an unemployed person can claim.

• Offering an additional 26 weeks of benefits to people who undergo relevant career training.

Arizona already covers people that leave a job for compelling family reasons.

The state would get $50 million for updating its distribution formula, an action that would cost about $14.2 million a year. The most cost-effective of the remaining options is the career-training option, which would cost about $7.3 million a year, according to the state Department of Economic Security

The $150 million would cover both of those options, at a cost of $21.5 million each year, for seven years. However, the state doesn't have to follow that spending outline.

For example, it could make the changes, accept the $150 million and then repeal the changes after four years if it appeared the related tax jump would hurt the economy. In that scenario, the temporary changes would cost a total of about $86 million, leaving Arizona the remaining $64 million to cushion its jobless-insurance trust fund.

A situation like that could save employers cash. The state trust fund that pays for unemployment benefits is expected to run out this week, and Arizona must soon take out a federal loan to replenish it. The Recovery Act money would come interest-free and could offset that burden, curbing future unemployment-insurance taxes.

Actual impact

Eleven non-profit groups that cater to low-income workers and their families sent a petition to Gov. Jan Brewer last month requesting that she accept the money.

The assistance could be life-changing for thousands of jobless Arizonans as they hunt for new positions.

"A lot of the stories I hear are about people who have lost their homes. They've lost their transportation. . . . People get very depressed," said Peoria resident Helen Joiner, who helped start a food bank out of the Arizona plumbers and pipefitters union hall in October.

Helen and her husband, Paul, routinely hear about the oddities of state's unemployment-insurance program. More than 20 percent of the union's members lost their jobs last year, yet very few have qualified for benefits due to the on-again, off-again nature of the profession's work.

Ironically, Helen said many of those same workers also made too much in the past year to qualify for food stamps.

She and Paul keep a closet stocked with non-perishable foods and toiletries to help out those members.

Paul jokes that if he had to, he, too, could "survive on Spam and peanut butter alone."

Cause for hesitation

If the only measurable advantage appears to be increasing laid-off Arizonans' personal comfort - even if there is no cost burden to the fund - it might not be enough to prompt legislative action.

The threat of a business-tax increase looms large over the state's already battered employers, said Farrell Quinlan, the Arizona state director of the National Federation of Independent Business.

A crush of new unemployment-benefit recipients last year led businesses' unemployment-insurance taxes to jump an average of 50 percent in January, the sharpest increase since 1976. By law, the tax goes up when the number of unemployment-insurance recipients increases.

Glenn Hamer, president and CEO of the Arizona Chamber of Commerce, said, "There is no certainty that the revised laws would be repealed."

Supporters say that the money would address a current crisis at no immediate cost to the state and that the other details could be worried about later.

The possibility of a business-tax increase seven years down the road is off-putting given the current economic climate, but the opportunity for change may be best while the unemployment issue is on everybody's radar screens, Vroman wrote in a February 2009 report.

Paul Burgess, Arizona State University economist and unemployment-insurance policy expert, said, "These folks who have lost their jobs are deserving of support. It is also an effective way to get money into the economy and stimulate spending."

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