On Friday, December 20, 2019, Michigan Governor Gretchen Whitmer released a statement announcing that in 2020, Michigan employers will no longer see an Obligation Assessment on their tax rate notice thanks to the early payoff of Michigan Finance Authority bonds by the Unemployment Insurance Agency (UIA). The UIA with its partners, sought to pay off the Obligation Assessment in 2019, allowing $55 million to remain with employers as opposed to collecting the additional tax through May of 2020.
In 2012, UIA in partnership with the Michigan Department of Treasury, refinanced a $3.2 billion debt owed to the U.S. Treasury with the issuance of bonds to cover the unprecedented increase in unemployment claims during that time. The bonds were to be repaid by quarterly Obligation Assessments on employers.
Although it was expected that it would take up to 10 years to satisfy the bonds, the bonds will be paid in full at the end of the fourth quarter of this year.
The agency noted that as a result of the early payoff, employers operating in Michigan will see a reduction of $65 – $217 per employee in 2020.
Michigan employer representatives in 2012 were key in the development of a solvency approach that sought to avoid the triggering of Higher FUTA taxes and keeping control of solvency measures in the hands of the state. The approach also included benefit reforms that contributed to solvency and helped build the Michigan unemployment trust fund balance.
Despite the robust recovery from the 2008 recession there remain a number of states with state unemployment trust fund balances below the guidelines recommended by the U.S. Department of Labor. The President’s budget proposal for FY 2020 included a provision that would have the effect of increasing FUTA tax penalties for employers in states with low UI trust fund balances. The FY 2021 budget proposal is due in February and may include such a provision again.
States considering UI solvency measures should include a review of the Michigan experience as they plan for legislation to address tax rates, benefits, and long term solvency of their UI trust fund accounts.
