POLICY HIGHLIGHTER

Volume 13, Number 29
October 30, 2003

Crack down on fraud and overpayments before raising unemployment insurance taxes

Washington’s Employment Security Department (ESD), which oversees the state’s unemployment insurance (UI) system, recently notified businesses that UI tax rates will increase by an average of 14 percent next year. ESD claims the rate hike is necessary because the state’s UI trust fund shrank 24 percent in the last year due to the high number of laid-off workers collecting benefits.

State law requires that UI rates be increased if the trust fund drops below a certain balance. As of September 30, the balance was approximately $216 million below what is necessary to remain at current tax rates. The 14 percent increase means employers will pay an average of $600 per employee into the UI system in 2004—up from $527 in 2003.

That said, the increase could have been avoided. In 2002, more than 12 percent of the UI benefits disbursed by the state were overpayments, meaning recipients were not eligible to receive the money. All told, Washington businesses paid almost $200 million more than necessary. Had these ineligible payments not been made, the UI trust would only be around $16 million below the threshold—an amount that could very well be made up with improved efficiency measures and recipient verification, or at the very least a much smaller rate increase.

Before raising UI rates, ESD has a responsibility to thoroughly verify claimant eligibility, aggressively pursue overpayments, and prosecute fraud. Now is the time for the Department to implement the new reforms passed by the legislature this year, and lawmakers should revisit Governor Locke’s veto of the requirement that all UI claimants provide proof of identity.

While businesses write the checks for the UI program, workers ultimately shoulder the cost through lower salaries, less benefits and lost jobs.

Unemployment Insurance Overpayments
($ amounts in millions)

Source: U.S. Dept. of Labor

Prepared by Jason Mercier | Budget Research Analyst | 360.956.3482

Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org