Ohio Legislator's Remarks at W&M Hearing on Employment Security Bill

TESTIMONY OF ROBERT R. CUPP, PRESIDENT PRO TEMPORE, OHIO SENATE

[1] Thank you, Mr. Chairman and members of the Committee, for the opportunity to testify before you on HR 3684. I am Robert R. Cupp, President Pro Tempore of the Ohio State Senate. Prior to being selected by our Senate as the President Pro Tempore, I chaired the Commerce & Labor Committee, which had jurisdiction over unemployment and employment services issues, for seven years. I am still a member of that Committee. I also serve on the Ohio Senate Finance Committee, which makes appropriations for our state's "employment security agency," the Ohio Bureau of Employment Services.

[2] HR 3684 is tremendously important to Ohio, as it is to other states, as well. Already four of Ohio's Members of Congress are cosponsors, demonstrating the importance our state attaches to this proposal. Today, I want to briefly describe why, from the perspective of a STATE legislator, this bill is important, and assure you that state legislatures are fully capable of assuming the new duties and flexibility provided by the bill.

[3] We recognize the importance of FUTA-funded services to help workers find their next job and to help employers find skilled workers. But when it comes to doing this important work, states have been shortchanged and left in the lurch.

[4] Here are the facts. Employers pay the FUTA tax, which is a dedicated tax for administering the unemployment insurance system, for the public employment service and for veterans' reemployment assistance, and for labor market information. For Ohio employers in FFY 1995, it was $259 Million. But neither the employers nor states are getting these funds back to provide services for which they were intended. For FFY 1995, Ohio received $102 Million from the FUTA tax. This means Ohio employers got back less than 39 cents on the dollar.

Ohio's return on employer FUTA taxes remains low,

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[5] As our Governor related to you in May of last year, Ohio is not alone. Since 1990, less than 59 cents of every employer FUTA tax dollar has been returned to the states for funding employment security.

[6] In Ohio, this shortfall in funding has resulted in the closing of 22 local employment service offices in the last four years, alone. Once, Ohio had nearly 120 offices where customers could get face-to-face service. Now, that's down to 57. Our Bureau of Employment Services has cut staff positions and is operating today at historically low staffing levels. Nearly every other state has had similar experiences. If there were a recession, Ohio would not have the capacity to respond.

Ohio legislators have ponied up income tax & employer

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[7] Because these employment services are important to Ohio's economic health, the Ohio General Assembly has appropriated more than $50 Million in the past four years to pay for what FUTA funds were meant to support -- and which are already paid by employers. Ohio's taxpayers get shortchanged when state general tax money must prop up a system that should be funded by FUTA. Ohio's taxpayers are paying twice to fund a system that's inadequately financed by Congress.

[8] The level of concern in Ohio's General Assembly about this is very high, and we have passed SCR. 10, a resolution asking our Congressional delegation for help. It specifically asks Congress to enact legislation to return adequate funds to states to fund the operation of the employment security system, and to give a fair return to employers for the taxes they pay under the Federal Unemployment Tax Act. Our delegation's positive response is obvious in their support of HR 3684.

[9] HR 3684 corrects the currently-flawed system, and gives states the resources and tools they need to properly and adequately operate their employment security programs.

[10] The bill gives employers a much fairer return for payroll taxes they pay. In addition, it repeals the FUTA surtax, whose original purpose has long been served. This provision will add an estimated $62 Million a year to Ohio's economy for job creation and business development and expansion.

[11] Most important, HR 3684 will return to states the funding necessary to properly administer their employment security systems and services, which are the unemployment insurance program, employment services, labor market information and employment service to Veterans. It increases overall funding available to states by up to 40 percent each year. For Ohio, that will mean $40 Million over present funding levels in the first full year of operation. And the bill eliminates the need for duplicative state add-on taxes to make up for FUTA funding shortfalls.

[12] Because there is more funding available, the bill helps Ohio by giving us the tools for more rapid reemployment of claimants, and by distributing FUTA surpluses to state benefit accounts. As you know, employers pay two separate "employment security" taxes: 1) FUTA; and 2) a state payroll tax collected by state employment security agencies under state laws. In Ohio, this tax is collected by the Ohio Bureau of Employment Services. The state payroll tax is used solely for unemployment benefits: to pay temporary income benefits to workers who are unemployed through no fault of their own and are actively seeking their next job. An employer's state unemployment tax is experience-rated according to formulae systems that vary from state to state. Generally, a poor experience, which is manifested by high employee turnover, results in a higher tax rate for that employer. State taxes are deposited into state trust funds managed by the Secretary of the US Treasury. Each state's tax rate and tax base is determined by the legislature in the individual state.

[13] In Ohio we do a good job of both (1) helping people find reemployment help and (2) keeping unemployment taxes reasonable. Ohio's trust fund is in the black. At the end of July 1997, Ohio had a balance of $2.105 Billion-- an amount which is well above a "safe level" of reserves. Last year, Ohio's unemployment tax rates were reduced significantly. This was the result both of a plan designed by our General Assembly in consultation with business and labor leaders years ago; and of careful tax administration, a health economy, and diligence in helping unemployment claimants obtain reemployment quickly. The average duration in Ohio for receipt of unemployment benefits is 13.6 weeks, down from 15.5 weeks in 1993. The impact on Ohio employers is enormously positive, reducing employers' state unemployment taxes by 27 percent on average and saving an estimated $210 Million. This is real money that can be used for job creation. Our employment security management in Ohio is effective and positive.

[14] HR 3684 enables state legislatures to do more of the kind of work they already do. State legislatures, like Ohio's, are up to the task. For Ohio, our legislature already sets unemployment benefit and tax rates. Our General Assembly already annually invests "special administrative funds" or "SAF" money in our employment security system. Our General Assembly is already experienced at setting tax rates to pay off loans from the Federal government.

[15] As you can see from our history of state support for our Bureau of Employment Services, our General Assembly is already experienced in deciding what amount of money is needed for employment service offices around the state of Ohio. My experience and work in the Ohio Senate committees tell me, when passing unemployment law and making appropriations too, our General Assembly is already experienced in handling FUTA conformity, and fully capable of spending FUTA dedicated funds only for FUTA's dedicated purposes. We are fully capable of properly budgeting, and in balancing budgets year after year. Our General Assembly is fully capable of the task of setting funds aside for extended benefit payments. Our General Assembly knows how to work with Governors, labor and business in building a first-class employment security system like we have in Ohio.

[16] The Ohio General Assembly and other state assemblies need the resources HR 3684 can bring, so we can devote scarce state funds to competing policy priorities like education to build a world-class workforce. We'd appreciate your help in passing HR 3684.