Lawmakers must tackle state’s woeful unemployment insurance benefits

Federal government assistance is buffering Arizonans from the impact of skyrocketing unemployment, but that help is time limited.

The $600 weekly supplement for those on unemployment insurance or Pandemic Unemployment Assistance (PUA) through the CARES Act ends in July. PUA provides federally-funded benefits to those who would not normally qualify for state unemployment benefits — such as the self-employed and gig workers. People who “lack sufficient work history” for the state’s unemployment insurance program also qualify for PUA. Due to the state’s excessive barriers to regular unemployment insurance, Arizona will lead the country in the portion of unemployed needing PUA to survive this difficult time.

Thousands of Arizonans working reduced hours could be left out of the state’s unemployment insurance program and PUA if the Department of Economic Security uses the current benefit formula for determining eligibility.

Fixing the state’s unemployment insurance system must be a top priority when lawmakers get back to work, even if it requires a special session.

State unemployment benefits cover no more than half of a person’s prior earnings, but Arizona’s cap, the second lowest in the country, has not been increased in 16 years. In the interim, the Legislature has made benefits harder to access. Before COVID-19, only one in eight unemployed Arizonans were receiving benefits—one of the lowest recipiency rates in the country.

Fixing Arizona’s unemployment insurance program is not expensive.

The Grand Canyon Institute stands ready to work with lawmakers on the following recommendations:

Benefit cap. Increase the maximum benefit cap to $490 per week, which is equal to half the average weekly wage of covered workers as reported by the U.S. Department of Labor. GCI recommends making this effective as of Aug 1, 2020 in line with the termination of the weekly $600 federal supplement, and adjusting this amount annually. A cap of $490 would place Arizona in the middle relative to other states and lower than most other Mountain West states.

Eligibility threshold. Lower the income threshold to be eligible to receive benefits to $3,120 in the worker’s highest earnings quarter and $4,680 over the four-calendar quarter base period.

Currently, Arizona has the highest eligibility threshold in the country by a significant margin. A person must earn at least $4,680 in a calendar quarter and at least $7,020 over the 12-month base period to qualify for unemployment benefits at all. This recommendation would still have Arizona tied for the second highest threshold for qualifying for benefits.

Income disregard. Increase the income disregard, allowing an unemployed person to earn up to ¼ of their weekly benefit amount before having benefits reduced. For example, a person with a $400 weekly benefit amount (if the cap was raised) would have a $100 income disregard. Thirty-four states (including all other Mountain West states) and the District of Columbia have adopted the recommended formula or something functionally similar.

Arizona’s lowest-in-the-nation $30 income disregard combined with the low benefit cap means anyone with reduced hours still making at least $270 a week gets ZERO benefits.

Alternative Base Period. Determine eligibility for benefits based on the first four or last four of the past five completed calendar quarters worked. This flexibility makes benefits more accessible to low-wage earners and those who have more recently entered the workforce. Thirty-six states and the District of Columbia allow Alternative Base Periods.

Finally, how do we pay for this?  Arizona’s Unemployment Insurance Trust Fund is funded by a payroll tax on the first $7,000 of an employee’s payroll, the lowest wage base allowed by federal law. The tax rate is based on an employer’s history of layoffs (though keep in mind employer ratings are not changing this year due to the pandemic).

Currently, state unemployment taxes are—not surprisingly—very low.  In 2019 the average rate was only $116 (1.67% of $7,000) per employee per year and in the last decade the rate has never exceeded $168 (2.4% of $7,000) per employee. This is a very small portion of payroll expenses.

Arizona needs to increase the taxable wage base sufficiently to generate an additional $100 per covered worker to fund improved benefits.

These changes would put Arizona in the mainstream of states in the Mountain West in an affordable, reasonable manner that protects hardworking Arizonans who lose their job through no fault of their own.

Rick DeGraw is chair of the Grand Canyon Institute Board of Directors and Dave Wells is the organization’s research director.