Gov. Rick Perry said Thursday that Texas should reject $555 million in federal stimulus money for the state's rapidly shrinking unemployment insurance fund, and he's in a position to make sure it's spent somewhere else, not Texas. It's a bad decision that appears based more on conservative ideology than practical economics.
An odd fact about Perry's decision is that it could mean Texas employers later this year will face a much bigger increase in their unemployment insurance tax than they would if the state took the $555 million.
The state's unemployment insurance fund is rapidly shrinking because a rising number of employers are laying off workers who qualify for weekly benefits from the fund. As of January, the state's unemployment rate was up, to 6.4 percent, with 75,800 jobs lost in January alone.
By this fall, the fund could be down $812 million from its legally required minimum. The fund is fed by a tax on employers based on the number of workers they have and their wages. To close that estimated $812 million gap will require a considerable increase in the tax rate.
But the tax increase will not be nearly as much if the $812 million gap is reduced by $555 million, notes Bill Allaway, president of the business-backed Texas Taxpayers and Research Association. Will Texas employers really be better off paying even higher taxes now - in the middle of a recession?
That's why Allaway told a House committee this week, "My advice is to take the money and run."
But the governor wants to refuse the money, and it's not at all clear that the Legislature could muster the votes to override a veto. Democrats, some Republicans and labor groups favor taking the money. But the governor and Bill Hammond, president of the Texas Association of Business, don't like the strings attached to the $555 million.
The $555 million comes with a federal catch - the state must make some modest changes in the eligibility standards for unemployment insurance that could mean about 45,000 more people, including some part-time workers, would qualify. The Texas Workforce Commission has estimated those changes would cost $368 million - over five years.
The eligibility changes, the governor says, would mean a permanent increase in the unemployment insurance tax, and that would mean employers would have less money to hire people. Besides, they say, they don't like the federal government telling them what to do.
But the tax on employers is going up anyway, at the worse possible time, because of those rising unemployment claims - the state has no choice, and it will go up soon by a lot more than the federal eligibility changes would require in the future.
Allaway says both sides have some legitimate points about faults in the unemployment insurance system, and he suggests that it's time for the state to take its first in-depth look at the system's virtues and faults in almost 30 years.
"But in the meantime," Allaway said, "leave $555 million in employers' pockets in the middle of recession."
Sounds like sensible advice to us. The governor ought to take it.
-Austin American Statesman