AUG. 7, 2009 -- A “blame game” of biblical proportions has been ongoing in Columbia for the better part of the past year, thanks to what could become a $1.5 billion fiscal meltdown at the S.C. Employment Security Commission (ESC), the state’s unemployment office.
Hundreds of millions have already been borrowed by the state from the federal government to prop up the cash-strapped agency, which doles out unemployment checks to 129,000 recipients weekly now, according to Allen Larson, the deputy executive director for unemployment information at the ESC. That translates to about $32.5 million being paid out weekly with about $11 million of that amount coming from federal money for those receiving extended benefits.
So far, the state has borrowed more than $441 million to refill the state’s unemployment insurance trust fund. South Carolina is far from alone, according to commission staff, who said the state was the 18th to receive federal loans. So far, the federal government has loaned more than $12 billion nationally in unemployment aid, according to ECS staff.
Commission staff members have discussed the amount internally that the state’s unemployment borrowing debt will grow to this year, but have yet to publicly release the agency’s estimate. Hundreds of millions of dollars of more borrowing still in the near future, which could bring the total debt to $1.5 billion, some say.
For the past year, the governor, who refused until the eleventh hour in December to sign on a federal loan application to keep the commission solvent, has blamed the agency and called for the removal of its executives and directors.
But the commission, which has documented the numerous times it told the elected officials of the problem, has passed on blame to the legislators and the failing economy. Legislators seem caught between blaming the ESC for not doing a better job of informing them, and the governor, for not having done a better job of economic development and job creation.
Ox is in the ditch
The proverbial “ox is in the ditch,” with the state’s mounting unemployment rate driving down payroll deductions fed into the state’s unemployment trust fund and driving up demand for weekly checks for laid-off workers.
But come January, the S.C. Legislative Audit Council is scheduled to release its examination of the trust fund’s sudden drop and what could be done to fix it, as well as how well agency officials may have sent up warning flairs, among others.
That report will likely be published right as legislators are returning to the Statehouse, and may come to dominate the political agenda in the upcoming legislative session in much the same way an audit of the state Department of Transportation did some years before.
A historical problem
The current situation has roots in the near past. A decade ago, state government, fat with cash thanks to surging tax revenues and low unemployment, made a series of fiscal mistakes, according to several sources. On top of using one-time, non-recurring dollars to fund ongoing multi-year programs, a goof that would hamstring the state budget when the recession hit, the legislature agreed with the S.C. Chamber of Commerce that the time was right to reduce the state’s unemployment withholding rate.
The measure passed easily.
At the time, it seemed like a smart move, said several sources. Many thought -- albeit during a charged and charging economy -- there was no way the state was ever going to blow through what was then perceived as an unemployment trust fund surplus.
They were wrong.
When this latest recession hit, many of the gains of the past decade were wiped out quickly, as if Hurricane Katrina were diverted to Wall Street and Gervais. The national and state economy slowed and reversed. Unemployment began to soar in South Carolina, rising most recently to 12.3 percent, third highest in the country. As a result, the unemployment trust fund was crippled in much the same way the state’s General Fund budget has been the last two years after being stripped of grocery taxes and the like.
Possible solutions
Now a short-list of politically unsavory solutions has emerged.
- Continue borrowing money from the federal government with no reform of the ESC.
- Raise the withholding rate, or contribute General Fund dollars.
- Cut benefits, either in terms of weekly maximums, enrollment, or length of time recipients are allowed in the program.
- Something that could be equally problematic: action. With a host of important issues this past session, the legislature accomplished little, comparatively.
Reforming the ESC makes for great election year fodder, but it could mean creating a system that increases the withholding rate when unemployment rates start rising. Republicans have been, in general, against taking money out of the state economy. Any increased rate could result in an even harder hit to the economy in a down cycle.
Tough choices ahead
Faced with such tough choices, Bruce Ransom, a political scientist at Clemson and the policy studies chair at the Strom Thurmond Institute of Government and Public Affairs, argued that now may be the time for the state to not only learn from its mistakes, but to also take a longer look at restructuring state government into a more responsive, executive branch-friendly model.
Ransom also said there was another lesson here: that the culture that happily lowers every tax need to take into account that all economies are cyclical by nature, and that what goes up will come down.
Rep. Vida Miller (D-Pawleys Island), whose late-session amendment influenced an ESC reform bill being sent back to committee, was less bookish in her solution. Jobs. More of them.
The governor needed to spend more time on job creation in South Carolina than he did on trips to Argentina, griped Miller, who said she was seeing more good companies go under each week.
Rate will rise, Chamber admits
State Chamber of Commerce head Otis Rawl said he would meet with members of the ESC next week and will deliver his organization’s solutions, which included excluding certain classes from receiving unemployment checks, like retired state employees who have returned to work under the TERI program, but are then laid off.
“But, make no mistake about it, we know the withholding rates are going up; we know we’re going to be paying more,” said Rawl, who will fight for the ESC to be split in two, with the duties of getting back to work being an independent commission.
Sanford’s camp remained resolute in what it saw as the overall change needed. “We believe there are two steps to beginning to address the ESC issue,” said Joel Sawyer, Sanford’s recently departed spokesperson.
“One is restructuring. It's unfathomable to us that the commissioners could have let the balance of the trust fund bleed down as it has without a peep, and we believe it highlights the need for more accountability there. The second step will be to review and implement the recommendations of the LAC report. “
Crystal ball: There may be a silver lining in this fight, following on the heels of mismanagement at the Department of Transportation a few years ago. It could bring more scrutiny to department and commissions that have been somewhat ignored over the years because they already receive so much in federal pass-through dollars. Before that, someone at the ESC better come out with a “preferred” solution, or, like Sawyer, he or she won’t be working in state government much longer. Just presenting a list of “possible” solutions to the House and Senate LCI committees will not be enough.