Oklahoma House of Representatives
November 4, 2003
FOR IMMEDIATE RELEASE

Contact: State Rep. Larry Ferguson
Capitol: (405) 557-7304
Cleveland: (918) 358-2365

By MIKE W. RAY
House Media Division Director
OKLAHOMA CITY -- The record payout of state unemployment benefits two decades ago during the depths of the oil "bust" is about to be eclipsed for the second consecutive year.

As a consequence, thousands of Oklahoma employers should prepare for a dramatic increase in unemployment insurance taxes next year, and jobless workers should brace for a reduction in unemployment benefits, Rep. Larry Ferguson warned.

The previous record of unemployment benefits paid during any calendar year was $222.5 million in 1986, Oklahoma Employment Security Commission ledgers reflect.

However, the agency paid $242 million in unemployment benefits last year, and even that sum will be surpassed this year. Roger Jacks, OESC program manager and actuary, estimated $230 million was paid out during the first 10 months of this year; $29.4 million was paid out in just the month of June, he said.

Another unemployment benefit record is expected to fall by the end of the year, said Ferguson, R-Cleveland.

The greatest payout for any 12-month period was $257 million in benefits allocated to unemployed workers between August 1982 and July 1983, when the oil "boom" in Oklahoma collapsed at the same time the national economy sunk into a recession. The OESC predicts it will pay out approximately $280 million in benefits by the end of this year.

An average of 29,919 jobless Oklahomans collected unemployment benefits each week during the first nine months of this year, compared to a weekly average of 25,067 during the same period last year, Jacks reported. OESC records show 126,751 initial claims were filed during the first nine months of this year, compared to 107,350 new claims during the same period last year.

In addition, the average duration of benefit payments has grown to 20 weeks -- five months -- Jacks said; in contrast, the average duration in 2000 was 13 weeks, records show. Also, trust fund interest earnings have declined from $51 million in 2000 to about one-half as much this year, state officials have calculated.

The result is that Oklahoma's unemployment insurance trust fund, which peaked at nearly $609 million in 1997, had fallen to $386 million by the end of September, and Jacks forecast that it will dip to about $350 million before the year is out. The balance includes $73 million in unspent federal unemployment assistance Congress appropriated in March 2002 via the Reed Act.

Because the unemployment insurance trust fund has shrunk, a substantial tax increase will be levied Jan. 1 on many companies, Ferguson emphasized. "I'm in business, too, and have to pay that tax just like thousands of other employers," he added. After four consecutive years of reduced unemployment taxes, the rates are expected to climb to their highest level in 11 years, Jacks said.

The tax rate schedule is established each year according to a formula: an average of unemployment benefits paid throughout the past five years, divided by the year-end balance of the fund. A ratio of less than two will push the tax schedule to its highest level, known as "Condition Level D," Jacks related.

House Senior Fiscal Analyst Stephen Weiss said a business' unemployment insurance tax rate is determined by three factors: total taxable covered payroll, experience with the trust fund (whether any employees have been laid off), and the prevailing condition level of the trust fund.

Oklahoma was not in any conditional factor in 1992-2002, but rates were elevated to Condition Factor A this year. As a result, rated employers have been paying unemployment insurance taxes of 0.2 percent to 5.8 percent on the first $11,700 of each worker's wages; that has translated into unemployment insurance taxes ranging from $23 to $679 per employee.

Jacks said more than 70 percent of the companies pay the lowest rate on the scale.
The looming tax hike will affect more than 73,000 Oklahoma companies, Jacks said, including 63,730 experience rated employers and 9,389 newly established companies. However, many companies are excluded, such as construction contractors, barbers, cosmetologists and newspaper carries, for example.

Jacks said rated employers will pay unemployment taxes next year of 0.3 percent to 9.2 percent on the first $14,300 of each worker's salary. Under Condition Level D, contribution rates will range from a minimum of $43 to a maximum of 1,316, and will average $314 per employee.

While rates will go up, benefits will go down, Jacks pointed out. Jobless benefits currently range from a low of $16 per week to a high of $303. The maximum will drop next year to $275, Jacks said. Even if the economy rebounds -- Oklahoma's unemployment rate has dropped for three straight months -- Jacks said higher rates and lower benefits will be imposed for a couple of years before the trust fund returns to "normal."

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