Business leaders seek federal aid to rebuild Michigan’s unemployment fund

Michigan business leaders are looking to Congress for help in rebuilding the employer-paid fund responsible for unemployment payments to the state’s jobless workers. 

In a joint letter on February 3 to the state’s Congressional delegation, six of the largest business advocacy groups in Michigan asked the federal government to add billions of dollars to the Michigan Unemployment Trust Fund as Washington considers aid to states as part of President Biden’s $1.9 trillion COVID-19 Relief package now being negotiated with Republicans.

“Refilling our state’s trust fund to prepandemic levels would recognize our state’s hard work to build such reserves, save suffering small businesses from tax increases, and provide security to future beneficiaries,” according to the letter, which was made public on Friday.

The letter was signed by the leaders of The Grand Rapids Chamber of Commerce; the Detroit Regional Chamber of Commerce; the Small Business Association of Michigan; the Michigan Chamber of Commerce, the Michigan Manufacturers Association and Business Leaders for Michigan. 

The request was initiated as the group became concerned that federal stimulus talks could result in a forgiveness program for states whose unemployment fund balances went into the red, said Brian Calley, president of SBAM. As of mid-December, 19 states were borrowing to cover jobless benefits, according to data collected by the nonprofit Tax Foundation, which said still more could join them. Michigan is not among them. 

“We have heard that the federal government is considering debt forgiveness as a mechanism for trust fund relief,” Calley told Bridge Michigan. 

That would mean that states that had to borrow would have their debt wiped clean, but states such as Michigan that were better prepared for the payment volume would have to turn to their businesses to restore the fund.

“This would be unfair to states like Michigan, who built up their unemployment insurance trust fund balance over the previous 10 years,” Calley said. 

Michigan’s trust fund stood at $4.6 billion in January 2020, when the state had the third-highest balance in the U.S. and was one of 31 states that entered the pandemic with trust funds that were solvent.

Michigan’s strong position in 2020 followed a point in the Great Recession when the state ran out of funds for jobless workers and had to borrow $3.8 billion from the federal government to cover unemployment payments. By 2011, employers had to pay an additional $240 million into the fund.

That rebuilding effort positioned Michigan well to weather steep job losses since the global pandemic shut down the state last March, a point Calley and other business leaders hope Congress will recognize.

“Even with the pandemic, we have not taken on debt yet because we had responsibility managed the fund,” he said. “Other states are deeply in debt because they had not properly funded it when the economy was strong. 

“So we wanted to ask that if the (federal government) provides trust fund relief, they do it based on how much the fund was depleted since March.”

Over the past year, the Michigan Unemployment Insurance Agency paid out over $28.1 billion in benefits, according to state data. While most of that was paid by federal COVID emergency relief, including funds authorized by the CARES Act in March 2020, $5.3 billion was paid from the Michigan Unemployment Trust Fund to people who qualified for so-called “regular” unemployment for the loss of full-time jobs.

By December, the trust fund balance had fallen to less than $750 million, according to a Michigan Senate Fiscal Agency report.

A month later, Michigan’s business owners were having to make higher payments into the system for 2021, a step resulting from the trust fund falling below $2.5 billion last  summer. The increased payments will cost an additional $5 to $50 per employee for the state’s businesses.

Business advocacy groups already had been concerned about that additional payment coming due early this year. 

Many Michigan businesses still struggle to replace lost revenue, like the 38 percent decline among the state’s small businesses from this time last year.

Some of the revenue decline can be attributed to mandatory closures caused by the government, Calley said. 

“We believe that it is important that the state and federal governments recognize that they took actions that directly lead to the depletion of the trust fund,” said Calley.

Close to 600,000 Michigan residents remain on unemployment, with 181,231 of them claiming the state benefits from the trust fund as of the week ended January 30.

Averaging 185,000 claimants per week or fewer would let the trust fund remain solvent, according to state Senate Fiscal Agency projections. That data took into account that employer tax collections generate most of the fund’s revenue in the first and second quarters.

In 2020, the Trust Fund generated just under $1.0 billion in revenue over the first and second quarters. The first two quarters of 2021 could generate more revenue under the increased tax. 

However, “if there is an unexpected increase in claims or additional closures, the Fund could become insolvent,” according to the report.