Scoppe: The second bailout

Associate EditorMay 17, 2012 

INITIALLY, the Senate Finance Committee seemed determined not to provide another bailout to businesses that had manipulated the state’s unemployment insurance program for years so that more responsible companies had to subsidize what amounted to vacation pay for those irresponsible businesses’ employees.

Even Sen. Greg Ryberg said he couldn’t support the House’s plan to give businesses another $77 million bailout. That was significant because it was Mr. Ryberg who sold the Legislature on the first bailout, last year.

That first bailout took $146 million in general tax revenue that could have been used to avoid teacher layoffs and college tuition increases, and instead used it to protect the freeloaders from having to pay the higher unemployment insurance premiums that Mr. Ryberg had convinced the Legislature to impose on them a year earlier. The higher premiums were supposed to help pay down a $1 billion federal loan that our state had to take out largely because the Legislature had slashed the premiums back before the recession.

“We gave people a tax break for eight or nine years, and now we’re collecting,” Mr. Ryberg said during a Senate Finance Committee meeting last month.

Or we would have been, if the committee hadn’t found itself with an unexpected $290 million to spend last week. Among the first at the trough to get slopped: the businesses seeking a second bailout.

Although it’s virtually certain that the full Senate will approve the second of what Mr. Ryberg had warned would be five years of bailouts — and perhaps because it’s virtually certain — it’s worth understanding why this is a bad decision.

It might not be such a terrible thing to bail out the companies that laid off few or no employees and now are having to help pay back that loan for the freeloaders. But figures presented to the Finance Committee make it clear that that’s not what happened last year, and it’s not what will happen this year.

First, some background: All employers contribute to a trust fund that pays unemployment insurance to laid-off workers. When times were good, and the trust fund was flush, our Legislature slashed the rates; then the recession came, the trust fund drained dry, and we had to borrow $978 million from the federal government to keep up with growing jobless claims.

Now, it’s true that the state had awarded unemployment insurance to workers who never should have gotten it. But the Legislature, appropriately, addressed that problem in 2010 and is, appropriately, further addressing it this year; more significantly, that wasn’t the primary reason we had to borrow all that money. We had to borrow all that money because of the rate cuts.

The old rates weren’t just too low; they were unfair. The 60 percent of businesses that never or rarely laid off anyone paid $87 per worker per year, while the rate was just $427 for those companies that shut down their businesses for a few days or weeks each year and temporarily laid off their employees, providing them an unemployment-insurance-paid vacation. The result was that the low-layoff companies were picking up a hugely disproportionate share of the cost of jobless benefits for people they didn’t lay off. (Just 14 percent of companies ran up more than $800 million of the $978 million deficit.)

So two years ago, when the Legislature raised rates to pay back the federal loan, it also made them fairer. Companies that laid off the most workers were put in tier 20 and charged $1,100 per worker per year, while those with no layoffs (tier 1) paid just $10.30.

When the bills came due, and the tier-20 businesses screamed bloody murder, the Legislature approved that first bailout. The bailout didn’t do anything for the $10.30 businesses. But it saved $22 per employee for businesses in tier two, $24 in tier three, $27 in tier four, and so on all the way up to tier 20, where businesses saved $249 per employee. Courtesy of everybody in South Carolina who pays taxes.

The percentages are fairly constant from one tier to the next. But the dollars are not. Just like before the reform, the businesses that laid off the most people got the biggest subsidies.

Without a second bailout, the tier-one businesses would see their rates go up from $10.30 to $11.76 this year. Actually, they’ll see that rate increase whether there’s another bailout or not, but I’m getting ahead of myself.

Without a second bailout, businesses in all 20 tiers would pay about 19 percent more this year than they paid last year. But for tiers two-20, this year’s rate still would be less than they were scheduled to pay before the 2011 bailout. In tier two, for instance, businesses would pay $97 per employee, up $15 from this year but down $6 from last year’s original rate. Tier 20 businesses would pay $1,042, an increase of $163 from this year’s taxpayer-subsidized rate but down $86 from the unsubsidized rate.

Under heavy lobbying from the chamber and individual businesses, the House voted this spring to use $77 million in general tax revenue to provide that second subsidy. So instead of increasing by 19 percent, the rates would increase by 4 percent. Tier-two businesses would save $11 per employee, tier-20 businesses $131 per employee.

The best businesses, those in tier one, wouldn’t get any of that $77 million.

The state is on track to pay off the federal loan in 2015, which means that businesses are scheduled to pay extra through 2015 — unless the taxpayers continue to bail them out. As Mr. Ryberg explained when he was opposing the bailout: “The system is working. It’s being reevaluated on an annual basis. If you do what the House is doing in its budget, I guess we’re going to be back here the next three years” handing out more subsidies.

All of which is to say that everybody who pays taxes in South Carolina — from the businesses that never laid off a soul to those people who got laid off to those of us who were lucky enough to keep our jobs — will be back here the next three years, handing out more subsidies to the businesses that were regularly, and deliberately, laying people off, even before the recession.

Ms. Scoppe can be reached at cscoppe@thestate.com or at (803) 771-8571.

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