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Correct Call to Reject Federal UI Strings

The sharp increase in the number of Texans losing their jobs has many wondering whether Gov. Rick Perry made a correct choice to reject the $555 million in unemployment insurance (UI) assistance offered by the federal government.

On the surface, bringing home an extra half-billion dollars for Texans who've lost their jobs through no fault of their own seems like a no-brainer. But peel away the veneer of "free money" and you see flawed public policy.

To draw down these one-time funds, Texas would be forced to make permanent changes in its unemployment eligibility system.

For the first $185 million, Texas would have to allow the use of an "alternative base period" for unemployment eligibility. Under current law, Texas reviews an applicant’s last four calendar quarters of wages to determine if the applicant worked enough to be eligible. The Obama Administration wants states to provide a bypass, allowing applicants to qualify if their wages would have been sufficient in the last one quarter.

The Texas Workforce Commission's cost estimate of this change: $212.4 million over five years.

That's not all. The rest of the money would hinge on the adoption of at least two of the following four benefit expansions:

* Allowing benefits to people seeking part-time work, not just full-time employment.

* Providing an allowance of at least $15 per week for each dependent living in a recipient’s household.

* Extending unemployment benefits past the current 26-week limit for persons enrolled in a state-approved job training program.

* Granting immediate eligibility for people who have quit their job for "compelling family reasons" or to move with a spouse.

The five-year cost of these individual changes ranges from $23.1 million to more than $1.4 billion.

Despite efforts from several legislators to craft legislation that automatically end those provisions as soon as they perceive the federal money to have been spent, the stimulus legislation makes clear that dog won’t hunt. The U.S. Secretary of Labor is directed to "disregard any State law provisions which are not then currently in effect as permanent law or which are subject to discontinuation."

Although many of the details are still being debated in Washington, this paragraph has many governors of both parties concerned about losing state autonomy and being shackled with higher costs imposed at Washington’s decree. The fallacy promoted by advocates of these eligibility changes is that the federal funds will "pay" for several years of the expanded benefits. In fact, those dollars will be used immediately to partially shore up the UI trust fund, and employers will foot the cost of the expanded benefits from Day One.

There are better options to address the projected trust fund deficit that control the level of taxes paid by Texas employers and preserve Texas' ability to manage our unemployment system as we see fit.

The federal government has a separate program that provides zero-interest loans to states that need help covering short-term UI trust fund deficits.

Additionally, the Texas Legislature in 2003 authorized the Texas Workforce Commission to issue bonds to cover such deficits. TWC has accessed this provision before – borrowing funds at a super-low interest rate thanks to the state’s strong credit rating, paying them off early, and saving Texas employers $270 million.

Both of these would address the short-term issue of shoring up our UI trust fund and continuing to pay benefits to jobless workers in a way that maintains a more predictable tax burden on Texas employers.

It is beyond dispute that people are losing their jobs, families are struggling financially and emotionally, and many well-intentioned legislators want to help.

But legislators must keep in mind that every additional dollar that Texas employers have to pay for people who aren't working is one less dollar available for job creation and economic recovery. And ultimately, the best way to help people who have lost their jobs is to foster an economy that creates jobs.

James Quintero is a fiscal policy analyst at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin.