The Colorado Unemployment Insurance Trust Fund has floated $630 million in revenue bonds to pay back the federal government for money borrowed to keep the fund solvent, and to recapitalize the fund.
The state could continue to pay the money back at a more leisurely pace, but that would incur penalties and interest from the Feds. The bonds are being floated, and businesses assessed an additional fee, in order to pay the Feds back now, and avoid the 3% penalty. The bonds themselves are fixed for five years at 1.4% interest, and secured by those assessments. (Colorado state government may not issue unsecured debt; the revenue bonds were enabled by HB12S-1002, passed during the special session.)
How did we got here in the first place? In 2009, the then-Democratic-controlled legislature agreed to a non-sunsetted expansion of unemployment benefit eligibility in order to receive a quick fix of $127 million, through SB09-247. Despite this expansion being sold as necessary to receive money “critical” to keeping the fund solvent, it went bust, anyway.
At the time, state Rep. Joe Miklosi, D-Aurora, actually made the argument that this wasn’t just the right thing to do for citizens, it actually made economic sense. Miklosi is currently running for Congress against incumbent U.S. Rep. Mike Coffman, R-Colo.
Here’w what Miklosi said on May 4, 2009…
“You can make a short-term Keynesian economic argument that, you know, when a person has their home and can shop at local stores, they can get back on their feet, we’re going to thrive both as an economy and socially.”
That’s right. Drawing down rainy-day savings, which is essentially what unemployment benefits are, is stimulative.
Well, give Miklosi credit for being ahead of his time. In 2010, then U.S. House Speaker Nancy Pelosi, D-Calif., said much the same thing: “It has a double benefit, it helps people who’ve lost their jobs, it is also a job creator.”
And earlier this year, despite a national unemployment rate of 8.2%, and an overall unemployment and underemployment rate of just under 15% (in spite of unemployment benefits having been extended at one point to 99 weeks), White House adviser Valerie Jarrett repeated this argument: “It not only is good for the family, it’s good for the economy.”
In fact, there’s just about no reason to believe that unemployment benefits are stimulative. When taken from companies (and to some extent, from employees), it acts as a drag on the economy, since they’re essentially a tax on operations, not sales or profits. Money paid into unemployment insurance isn’t put away to be reinvested in the economy, it stays in cash or in Treasuries, funding government operations.
When the money is drawn out, it may permit people to continue spending, but there’s plenty of reason to believe that much of that spending would happen anyway. There is also considerable evidence that a too-generous unemployment safety net discourages people from looking for work until benefits run out.
“Studies conclude that extending benefits to 99 weeks during the recession has raised the unemployment rate by between 0.5 and 1.5 percentage points,” according to a Heritage Foundation analysis in 2011.
If we agree that some form of forced savings for unemployment is the right thing to do for social stability, a system of private accounts, which would eliminate the disincentive to find work, might well be a better way to go.
Regardless of what form the system takes, there’s little reason to think of the benefits as stimulative. Miklosi’s statement is reason to doubt his economic literacy.