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Unemployment fund deficit nears $2 billion


Renissa Pinner (left) and Lubie Gurnell are among many Indiana workers who have been blocked from receiving unemployment benefits when they are laid off in summer months. - FRAN QUIGLEY
  • Fran Quigley
  • Renissa Pinner (left) and Lubie Gurnell are among many Indiana workers who have been blocked from receiving unemployment benefits when they are laid off in summer months.

If this was supposed to be a vacation, Renissa Pinner was not enjoying it much.

Pinner, a teacher assistant with a pre-school program on the Southwestside of Indianapolis, had been laid off in June. The layoff was a common occurrence during Pinner's 12 years working for the not-for-profit Head Start provider Family Development Services. The company relies on federal funding that does not allow it to pay all of its employees during the summer months.

But the blow of the layoffs was always softened by Pinner receiving unemployment insurance benefits through the federal-state program that provides a safety net for workers who lose their jobs through no fault of their own. Pinner's unemployment checks were a fraction of her usual salary, but they helped."A couple hundred dollars a week is a lot better than nothing," she said.

Then, in the summer of 2012, Pinner received a notice from the Indiana Department of Workforce Development.The state had ruled that she was on "unpaid vacation" and terminated her unemployment benefits. Worse yet, the state agency demanded Pinner pay back the benefits she had received so far that year.

"That was my only source of income," she said. "It really, really put me in a bad spot." Pinner fell behind on her utility and car payments and fielded threatening calls from creditors. But Pinner's church helped her out, and her landlord agreed to be patient on the rent until Pinner was able to be rehired.

Her co-workers were also cut off from unemployment benefits. One colleague, a pregnant mother of three, could not make a rent payment and was evicted from her apartment. Pinner let the family move in with her. The laid-off workers found prospective employers reluctant to hire people who were hoping to resume their longtime jobs in just a few weeks. Some of the Family Development Services workers had their cars repossessed and struggled to meet basic needs. "You are talking about three months of groceries people are not able to buy," Pinner's co-worker Lubie Gurnell said.

Gurnell, who has driven buses for Head Start students for 31 years, was able to avoid foreclosure on her home last summer only by dipping into savings she had set aside for retirement. She said she is not sure how long she and her colleagues can endure an annual pattern of multiple months with zero income.

"A lot of people left the job this year because of the unemployment issue, and you need qualified people to run these programs," Gurnell said. "We are all going to be in trouble if this keeps happening."

Unemployment insurance claims are paid from a federal trust that is funded by employers paying premiums in the form of payroll taxes. When an individual state's employers' fund contributions do not cover the amount of unemployment claims coming from that state's workers, the state government borrows from the federal trust fund to pay the claims. In part due to the recession and resulting job losses, Indiana and many other states have been borrowing heavily from the federal trust fund for several years. As of late Feb. 4, according to the U.S. Department of Labor, Indiana owes more than $1.8 billion to the U.S. for reimbursements on unemployment insurance claims above what the state covered with employers' contributions.

The surprises last summer for Pinner, Gurnell, and hundreds of other Indiana school bus drivers, teacher assistants, and school cafeteria workers were the culmination of events that began in the Indiana General Assembly in 2011. In March of that year, the General Assembly passed and Gov. Mitch Daniels signed a new law that slightly raised some employers' contributions to the fund and reduced benefits to some laid-off Indiana workers.The new law included a provision that barred Indiana workers from receiving unemployment insurance benefits if they were not being paid because of their employers' "regular vacation policy and practice."

The Indiana Department of Workforce Development cites this law as the basis for cutting off Pinner, Gurnell, and the others. The workers don't see the connection.

"You can't call this a vacation when we are not getting paid for it," Gurnell said.Most of the affected workers have appealed the rulings, which were upheld in late December by the state's review board for unemployment insurance. Attorneys for the workers say they intend to appeal those decisions to the Indiana Court of Appeals.

The workers and their supporters say Indiana lawmakers have knowingly underfunded unemployment insurance for many years, and now are demanding laid-off workers pay the price. Historically, Indiana applied the lowest unemployment tax rate on employers allowed by law, along with setting the amount of employee wages subject to the tax at the lowest allowable level. Insufficient employer contributions were digging Indiana into a hole, and state and federal officials knew it.

For example, U.S. Department of Labor reports show that, at the end of 2007, Indiana was underfunding unemployment by 22 percent compared to recommended levels. When the recession hit in 2008 and 2009, and Indiana was paying out $3 or more in unemployment benefits for every $1 collected from employers, the state's deficit was exploding. Indiana has slightly raised the amount it collects from employers, but the U.S. Department of Labor still said the state is taxing employers at a rate well below recommended levels for adequate financing.

"Clearly, Indiana legislators hate tax increases, which is why they underfunded the unemployment insurance tax fund to begin with," said Rick McHugh, an attorney with the National Employment Law Project. McHugh represents several dozen Anderson, Ind., school bus company employees who had their unemployment benefits cut off this summer.

"So now Indiana is making unemployed workers the sacrificial lambs," he said.

Indianapolis attorney William Groth, who represents Pinner, Gurnell, and several other school-year workers appealing the decisions, said he recognizes Indiana's need to address the imbalance in the unemployment insurance trust fund. "But it is unconscionable that the state feels it should pay down the unemployment insurance trust fund deficit by excluding otherwise deserving workers from benefits," Groth said.

Indiana Department of Workforce Development spokesperson Joe Frank said the agency is simply applying the new law as written by the legislature. Judging from the agency's arguments in front of the review board, it also appears that the Department of Workforce Development feels that employers like Family Development Services have been receiving a free ride at the expense of the trust fund. During the appeals of the summer 2012 cut-offs, Department of Workforce Development Deputy Commissioner Joshua Richardson introduced records showing the companies' employees had drawn far more benefits than the companies had contributed to the trust fund.

Yet the companies had paid all the State of Indiana had asked of them, worker advocates respond. And it was the workers, not the companies, who had their checks stopped.

"This is happening because the legislators and the Daniels administration decided to reduce the trust fund deficit without raising taxes on employers, and I don't know if it is any more complicated than that," Groth said.

Pinner and Gurnell are back at work now, but they are worried about what this summer will bring. They consider themselves fortunate to have weathered the unexpected loss of weekly checks last year, but they are not sure what they and their coworkers will do if the state's decisions are upheld.

"I wish they could realize how devastating this was for people, and how it caused a lot of hardship," Pinner said. "This is people's livelihood you are messing with."

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