Yes, Georgia Can Pay Its Unemployment Claims

George asked the question here. I spent a good amount of time talking to Georgia Labor Commissioner Mark Butler this afternoon getting the answers. TL; DR version: Not only can Georgia pay its employment claims, but it has already paid out $2.3 Billion in claims so far. AND, the state has roughly $4 Billion on hand for future claims with more likely to come.

Paying claims is not a problem of cash, but claims must be moved through various pipelines – including new categories of employment added under the CARES Act. Despite social media clatter, Georgia is actually ahead of most other states in incorporating new federal programs into existing programs (and IT systems), processing claims, and writing checks.

With that pre-amble, let’s take a step back and clarify what the Unemployment trust fund is, how it and the Department of Labor are funded, and what’s different under the Federal CARES act. This will not be brief nor light reading, but it’s important to understand – especially for the folks who have been denied or those wanting to help them.

The Unemployment Trust Fund is administered by the state, but it is not funded directly by Georgia taxpayers. It is funded by premiums on wages paid by Georgia employers. This money goes into its own lockbox, and, to be clear, has nothing to do with the state’s rainy day fund. Zero, zilch, nothing – as, repeating here, state taxpayers don’t fund unemployment claims.

In fact, the state taxpayers don’t actually directly fund the Department of Labor. Federal funds (and we as federal taxpayers) fund about 85% of DOL’s budget. The remainder is funded by .06% of the unemployment taxes paid by Georgia employers.

Except, that money goes into the general fund. Each year since the great recession, roughly half of that money, ranging from about $8M to $14M per year, was kept in the general fund for other purposes. So Georgia employers are basically donating funds to the State Treasury beyond what they pay toward future unemployment claims and their funding of the DOL.

At the beginning of the pandemic, Georgia’s unemployment trust fund had about $2.6 Billion in it. This is NOT to be confused with Georgia’s rainy day fund, which contained a similar amount. This is money that can only be used to pay unemployment claims, and is doing so.

Since March 16th, this fund has paid out $780 Million in claims. That’s just in state unemployment benefits, as we’ll discuss federal funds in a bit. The trust fund still has $2 Billion in reserve, as employers continue to pay into the fund.

As to the question of claims paid verses denied, Commissioner Butler estimates that 40-50% of claims have not been verified. Some have been denied, many are duplicate claims by the same person, and there are even a few cases of fraud. BUT, it’s important to understand what a denial is. Again, it’s technical, but for those looking for the extra $600 per week from the federal CARES Act, it’s very important.

Under law, an unemployment claim can only be paid to a worker attached to a former employer. (i.e, to be “unemployed” requires first having been employed). If a claim is filed and there is no employer, the claim is denied. That’s the law, but it’s not the end of the process.

Those who were 1099 workers or were paid under methods other than W-2 wages can still qualify for unemployment under the CARES act for Pandemic Unemployment Assistance, or PUA payments. They can only get PUA if they were previously denied state unemployment benefits.

Also, under the CARES Act, those getting unemployment under the original state plan or under PUA qualify for $600 per week through July, as Federal Pandemic Unemployment Compensation, or FPUC.

Both PUA and FPUC are paid by the federal government, not by the state. To suggest that the state is purposely dragging it’s feet on these payments when it’s not a state liability has no basis in fact. None.

In fact, the federal governement has already disbursed $3.3 Billion to Georgia for PUA and FPUC payments. When combined with payments from Georgia’s unemployment trust fund, Georgia has already paid out $2.3 Billion in claims, and has billions remaining on hand to pay out future claims.

The fed will likely have to send more (and the feds have been sending funds regularly), and employers will continue to pay unemployment insurance. But what if the state runs out of money? We’ll borrow it from the feds, just like we did when Michael Thurmond was Labor Commissioner during the great recession. About $1 Billion of that debt was still on the books when Butler took over the office. That’s not a slam at Thurmond any more than having to borrow from the feds this time would be at Butler. That’s establishing a recent reference and historical fact for what could happen if this lingers a lot longer than expected.

Steadily rising employment over the past 8 years allowed Georgia to refill it’s coffers to be ready for today. California, on the other hand, still had debt from the last recession in its trust fund when the pandemic started, and is having to borrow even more to pay current claims.

Commissioner Butler said directly to George’s assertion that he may have to “suggest in public that the fund might not be able to carry the burden” that “…he’s never going to hear me say that, because we’re never going to have that problem. Never.”

So, recapping before we move on, those who were 1099 employees or can’t otherwise prove they are attached to an employer have an extra step in the process, but they are being paid. This step requires those filing to self-certify their wages on an application, then send documentation of that compensation to DOL to approve and process their claim.

Those who were W-2 employees (and thus covered under existing unemployment insurance at the state level) should see easier processing, as the DOL asked all employers laying off employees to file electronically for them.

This streamlining step actually put Georgia ahead of most other states in processing claims, whereas states like Florida are still trying to figure it out, despite dropping roughly $100M on new contractors to “help” with the influx of new claims. Butler chose to focus on tasking existing employees and incentivizing them to work extra hours/nights/weekends to meet the demand, as they already knew the systems and didn’t have the learning curve. Georgia DOL took less than 2 weeks to absorb the new rules under the Federal CARES Act, reprogram existing systems, and train employees on the changes – All while working under their own new conditions for the pandemic.

Commissioner Butler estimates that 84% of those covered under state unemployment insurance have been approved for claims, whereas the vast majority of the remaining 16% are new applicants. It should be noted that it generally takes 21 days to process a new claim, as the employer has 10 days to respond if there is a dispute on eligibility for unemployment.

Even here, a traditional barrier has been removed. Normally, an approved claim for unemployment insurance will increase future UI premiums for the employer. UI claims due to pandemic will not affect an employers UI premiums.

In summary, skepticism of any government entity or action is always necessary or warranted. Before jumping to premature conclusions, a look at basic facts, prior and new funding mechanisms, and actual performance relative to peer states is warranted.

Everyone is stressed, and those wondering how to make ends meet certainly have both the right to answers as well as the checks they are entitled to. As one of my colleagues told me in an interview when this first started “we all need to start from a position of grace and understanding”. Those newly unemployed certainly have that from me.

I would ask that more of us have grace and understanding for the 1,000 employees of Georgia’s Department of Labor – an agency that had 2,200 a decade ago – and understand that they have already processed more claims in the last seven weeks than in the entire worst year of the great recession.