South Dakota Department of Labor - Kattke, Don

The South Dakota Department of Labor submits the following comments in response to the proposed rule Federal State Unemployment Compensation (UC) Program; Funding Goals for Interest Free Advances RIN 1205-AB53. The proposal appears to disregard the immediate impact of the recession, the future impact severe recession level benefits will have on the application of the solvency standard and the action of many states to maintain solvency standards. The majority of states are dealing with record high benefit levels and immediate or near-future insolvency. They are working through the political and financial implications of decisions to restore solvency to their programs and may need cash flow loans over the next several years as a tool in this process. Implementing this new requirement will seriously hamper this process. South Dakota has never been insolvent but now faces that prospect due to benefit payments at three times normal levels. The State Trust Fund declined to an unacceptably low level in the 2001-03 recession. The state took prompt and responsible corrective action by increasing employer payments to the fund, but the changes did not have enough time in place to correct the problem before the onset of the current recession. Future changes are planned to again restore solvency to the fund, but they could be complicated by the abrupt elimination of favorable loan terms. The application of the standard could require unnecessary reserves. The South Dakota experience is having an adequate reserve by this measure might be sufficient for current benefit levels, but those high levels have never been experienced in the recent past. Having “sufficient reserves” would have meant significantly higher payments would have been required from employers, and those payments would have remained in the federal trust fund, not needed and not used, for decades. Having favorable temporary loan terms available is a better business practice than taking these funds out of local economies. As the solvency standard is a function of historical benefit payments, the current high payment levels will drive the “sufficient reserve level” even higher. In summary, South Dakota recommends the entire proposal – necessity, timing and financial requirements – be tabled in light of the length and severity of the current recession.