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Jobless claims another LA fiscal time bomb

It may not affect budgeting in Louisiana now, but the state’s remarkably higher unemployment claims will create a ticking time bomb that could stress the state’s fiscal health for years to come.

As a consequence of proclamations by Democrat Gov. John Bel Edwards to ward off ill effects from the Wuhan coronavirus pandemic that has shut down large swaths of Louisiana’s economy, claims for unemployment benefits have mushroomed. Through Apr. 11 from Mar. 14, claims have soared from around 16,000 to 293,000.

(Note that despite this cratering job market the state’s workforce expanded in March by some 42,000 from February. This is because to draw unemployment benefits you have to maintain that you actively seek work, which then counts you for statistical purposes in the workforce. In other words, attracted by extending the special $600 a week benefit to people who normally wouldn’t qualify for regular state unemployment insurance, out of the woodwork came these people many of whom otherwise would not have intended to work anytime in the near future but now suddenly have been handed a guaranteed basic income for the foreseeable future.)

A combination of state and federal laws means in Louisiana that employers fork over a tax to pay for continuing claims as well as to build up trust fund on which to draw when claim dollars begin to exceed employer contributions on a pay-as-you-go basis. Louisiana has done well in this regard, as it and only 13 other states avoided borrowing after depleting their funds during the 2008-09 recession. With 30 other states it exceeds a ratio utilizing fund balance, yearly paid wages, and benefits paid out for the year signifying adequate capitalization, ranking 16th best.

But the extremity of the current situation leaves few states immune to depletion of their funds. All should have to draw on their banked monies, and some will run out quickly. Louisiana is about in the middle of the pack, with an estimated 19 weeks cushion as of last week.

Essentially, that estimates that as long as Louisiana remains with this many claims by Aug. 22 the state would have to start borrowing from the federal government to pay off beneficiaries. Because of its superior history, it would have until Nov. 10, 2022 at no interest to pay it all back.

However, this would add up quickly. Let’s assume needed an extra five weeks worth at this level, although extended out for the rest of the year. That would mean borrowing $280 million, which would have to be defeasible in fiscal years 2022 and 2023. Anything past that, and the state has to pay interest and in most situations raise employer taxes.

So, the longer the economic embargo in the state lasts, the more likely it will deplete its surplus and consequently have to tax and spend more in future years. At the very least, the current drawdown will make a significant dent in accumulated monies that will increase Louisiana’s vulnerability to economic downturns in the future. This potential detonation provides yet another incentive to free the state’s economy as soon as possible.

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