I'm beginning to think that having put the State Capitol near the Mint was a mistake. I think the Democrats are beginning to think that they can just print their way out of whatever burdens they put on the state.
We found out last month that the Colorado Unemployment Insurance Fund was safe, despite climbing unemployment numbers:
Reforms instituted a generation ago appear poised to keep the system solvent even as other states see their unemployment programs go broke. And work is under way to improve the department's Web site this spring, which should make it more user-friendly and ease the strain on the phone system....
In the 1980s, state lawmakers set out to protect the state's Unemployment Insurance Trust Fund -- it is used to pay benefits to people who lose their jobs -- after watching it go broke in a recession.
The result was an additional tax, dubbed a "solvency surcharge," that was designed to kick in whenever the trust fund's balance fell below 0.9 percent of the wages paid in the state. The calculation is made each year on June 30, and in 2004, after three years of recession, the tax kicked in.
The result: Colorado's unemployment trust fund grew to $672 million last fall, just as the latest recession was taking hold. That allayed fears that Colorado could again find its unemployment fund out of money.
...
"It would take a deep recession that went on for several years before we would go insolvent," [Mike Cullen, Colorado's director of unemployment insurance] said.
His assertion is backed up by various scenarios that have been considered, including a moderate or even severe recession, said Alex Hall, the department's chief economist.
"Certainly with all the information we have available at this time, and what we feel are reasonable scenarios, including scenarios that take us into a pretty deep recession, we feel that the surcharge is providing that stability and revenue for the unemployment insurance trust fund, and that solvency will not be an issue for us," Hall said.
Well, not so fast there, cowboy.
In a state budget outlook delivered week, the Colorado Legislative Council Staff predicted the fund balance "will fall precariously close to insolvency" to just $44 million by June 30, 2010, down from nearly $700 million on June 30 last year.
The Colorado Department of Labor and Employment expects a healthier fund at $187 million on June 30, 2010, but still has concerns, said Mike Rose, chief of statistical programs for the department.
"We also consider it possible that the fund might be marginally solvent at periods in 2010 and 2011," he said Wednesday.
Unemployment insurance payouts are expected to total $834.1 million in the current fiscal year that ends June 30 and stay at that level for another year, according to the council forecast.
In the midst of this, the legislature seems poised to pass HB 1170, which would entitle employees who are locked out - that is, they have jobs but are involved in a labor dispute - to receive unemployment benefits.
Here's a chart showing the monthly balance of the Colorado Unemployment Insurance Fund, along with a 12-month moving average of employer contributions and benefits paid out:
The reason I've smoothed out these payments and contributions is that employer contributions are extremely seasonal. They generally see a large jump in May, when the surcharge is assessed. They also tend to have almost no contribution during the last month of each quarter, while the first month of each quarter is the highest.
So, the payouts are still rising, and have just passed the contributions. For the first time since the recovery from the last recession, we've seen an actual drop in the fund's balance. Even if all those conveniently-times stories about how we're hitting bottom are correct, unemployment is a trailing indicator. Since contributions are based on the current aggregate salaries paid, that means that contributions will fall even as unemployment rises. This dynamic refills the coffers during the latter part of recoveries and prosperity, but drains them towards the middle and end of recessions.
Then, there's this:
A state Senate committee took up a bill Wednesday that would make Colorado eligible for $127 million in federal stimulus money for the fund by expanding the definition of who can qualify for jobless benefits. It would cost the state an estimated $14.6 million in the fiscal year that begins July 1 to make the changes, largely to pay benefits for newly eligible residents.
So we'll pick up a net $100 million this year, at the cost of no future returns and nobody-bothers-to-ask how much more in perpetual commitments down the line.
The only way out is to float debt. If we end up having to do this during an inflationary period, it'll mean higher rates and even more trouble down the line.
Unemployment insurance is well-established by now. But I can't help wondering if it wouldn't be better to give it to the employees up front rather than paying to the government for what passes for their traditional definition of, "safekeeping"
