Michigan's unemployment fund dips below $2.5B, triggering tax hike for employers

Lansing — Michigan's unemployment compensation fund has fallen below $2.5 billion, triggering a tax increase for employers in the next calendar year to help refill the fund, according to a spokesman for the Unemployment Insurance Agency. 

At the same time, the state announced Thursday it has overpaid $8.2 million in duplicate unemployment payments to about 3,000 out-of-work residents and is going to attempt to collect the money.

The overpayment, found May 11, includes both state and federal stimulus dollars.

It was not immediately clear what the current balance of the UIA compensation fund, but UIA spokesman Jason Moon confirmed it had fallen below $2.5 billion prior to June 30.

State law requires that should the balance fall below $2.5 billion by June 30 the taxation rate for unemployment contributions will increase from a cap of $9,000 for employers to $9,500 in the next calendar year. All employers are affected regardless of their size.

The development will pose a burden for small businesses, said Brian Calley, president of the Small Business Association of Michigan.

"Our most recent survey of small businesses showed that one in seven were not even confident they would be able to stay in business," Calley said Thursday. "Sixty percent of small businesses expect a decline in sales of more than 25%. They simply can’t afford higher taxes when they are struggling to even survive."

As of last week, the agency said it had paid out roughly $14 billion in benefits to more than 2.1 million people, but the majority of the payments have been made with federal money. 

An additional 37,312 people applied for unemployment in Michigan during the latest week, an increase from the 19,641 who applied the week prior but much lower than the hundreds of thousands of new claims filed weekly at the height of the pandemic, according to U.S. Bureau of Labor Statistics. 

Nationwide, employers added 4.8 million jobs in June. The United States has recovered about one-third of the 22 million jobs lost during the pandemic, according to the Associated Press.

The state’s Unemployment Insurance Agency said Friday it has validated 140,000 of the 340,000 active unemployment accounts, about 41%, that had been frozen due to concerns they may be fraudulent.

The state pays its share of unemployment benefits out of a trust fund that totaled $4.6 billion at the start of the pandemic. As of June 24, the balance stood at $2.5 billion but apparently dipped below that level by the June 30 benchmark.

The development underscores that the state has an economic emergency on top of the public health emergency, SBAM's Calley said.

"We were encouraged when some of the CARES Act dollars were proposed to be deposited into the trust fund and disappointed when the final supplemental appropriation didn’t include it," Calley said about the federal aid that provides a $600 supplemental payment to the state's weekly unemployment payment of up to $362. 

Gov. Gretchen Whitmer said in May that the state could borrow money from the federal government if the trust fund runs short of cash. 

Rep. Matt Hall, the Marshall Republican who chairs the Joint Select Committee on the COVID-19 Pandemic, said the committee was informed of the June 30 cutoff last week and is reviewing the situation. 

The law triggering an increase in unemployment taxes likely was put in place to ensure a healthy balance in the trust fund, which has dipped dangerously low in the past, Hall said. 

At the start of the Great Recession, in September 2008, the same trust fund had less $40 million. 

"It does show that what's happened here is going to have a consequence," said Hall, referring to Michigan's aggressive stay-at-home orders that shuttered thousands of businesses. "This is one of the first consequences we're seeing.”

The Michigan Chamber of Commerce has been watching the trust fund, knowing it would likely hit this mark and taxes would go up, said Wendy Block, the chamber's vice president of business advocacy and member engagement.

"It's disappointing. Our members are struggling to recover still, and many have not been able to open," Block said. "And while employers' individual tax rates won't be penalized, the system is 100% employer-financed and that means everyone pays more for these claims."

Some of the unemployed will have to pay, too. The Unemployment Insurance Agency recently completed an internal review that found it had  inadvertently sent duplicate payments in May to a small percentage of unemployed claimants, Moon said.

"The UIA caught and fixed the error the next day," he said. "The agency immediately notified workers who may have received the extra payment that there was no action to take and that the agency would automatically remove it from their accounts."

The UIA later found the overpayment could not be automatically canceled or retrieved by the agency, Moon said.

The agency will communicate with affected claimants through their jobless accounts and offer voluntary repayment options — such as paying the lump sum at once, having future benefits reduced 50% until the amount is paid off or making payments, he said.

The mistake was made as part of the agency's efforts to expedite unemployment benefits to workers and avoid any delays in payments, Moon said.