Relief for Arizona Employers: End of Unemployment Insurance Debt

Great news for Arizona employers: the state has finally crawled out from under the federal unemployment insurance debt amassed during the recent financial crisis and is on its way to restoring a healthy reserve fund for the next economic emergency.

As reported by the Associated Press, Arizona has made a major comeback from a debt which at it’s high point hovered around the $600 million mark. Not only has their state unemployment insurance (UI) fund cleared the debt, there is also now a $160 million balance. When the repayment was first announced in May, the state unemployment rate was at 6.2% and it has continued to improve; as of this writing it stands at 5.8% (Bureau of Labor Statistics).

Here’s what this means for employers in Arizona:

  • Employment taxes are expected to decrease, though they may remain where they are temporarily until an adequate balance is restored to the state’s unemployment insurance fund. Mark Darmer, Deputy Director of Programs at Arizona’s Department of Economic Security told the Arizona Daily Star he expects the current [$42 per worker] levy to continue as it is until at least 2016 or 2017.
  • The current outlook is good; even while waiting for the decrease to kick in, there is also the relief of no additional unemployment fund-related tax increase on the horizon. Currently, Arizona employers pay an average of $160 per employee each year (varies across employers).
  • Restoring the health of the state’s UI system also helps the economy by making Arizona more attractive to new employers.

How did Arizona’s unemployment insurance fund end up in debt?

As you may recall, Arizona was forced to take on this federal debt during the Great Recession when state unemployment insurance reserves (then at $1 billion dollars) proved inadequate for the ongoing elevated rates of unemployment. At the time (2009-2010), nearly half of the states across the country found themselves in similar circumstances, requiring emergency aid from the Federal government as they were ill-prepared for a financial crisis of this magnitude. Nationally, the UI crisis has proven to be a costly lesson in financial crisis preparedness, with employers footing the bill.

Currently, United States Department of Labor data shows that only five states (and the Virgin Islands) continue to carry federal unemployment insurance loan (FUA) debt. As of June 25th, the combined debt balance for all states and territories is $7.1 billion, with the bulk of it ($5.7 billion) belonging to California. In perspective, that is quite impressive — just two years ago, the cumulative debt was $28.8 billion owed by 23 states and territories. At the time, California’s debt was roughly twice what is now.

Screenshot of DOL data:

 

To see how far Arizona has come, you can see a snapshot of the state of UI for Arizona in this 2013 post.

If you are an employer with operations in Arizona (or any state), have you reviewed your UI practices since the Great Recession? Much has changed withnew UI Integrity laws. Our tips will help you meet the new standard.