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Scenario 15

Scenario 15. Allow FUTA credit reduction in 2011 and 2012. Keep rates for classes 1-12 the same as under current plan. Give savings to 13-20 in the form of reduced rates for 2011 and 2012. Surcharge on 13-20 to cover extra FUTA costs for 1-12. Sunsets at end of 2012.

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Scenario 15

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  1. Scenario 15 • Allow FUTA credit reduction in 2011 and 2012. • Keep rates for classes 1-12 the same as under current plan. • Give savings to 13-20 in the form of reduced rates for 2011 and 2012. • Surcharge on 13-20 to cover extra FUTA costs for 1-12. Sunsets at end of 2012. • Avoid FUTA reduction beginning in 2013 with voluntary payments under the normal method. (FUTA returns to net 0.8%)

  2. Scenario 15 • Repays loans in May 2016—one year later than legislated plan. • Marginally higher interest costs but absorbed over additional year. • Leaves trust fund balance at $0 in 2016 rather than +$200 million.

  3. Scenario 15 State costs plus extra Federal Cost in 2011 & 2012 shown.

  4. Scenario 15 Essentially unchanged Savings from repaying 1 yr later

  5. Scenario 15 • Main concern is that this leaves the trust fund in essentially the same position we found it in at the beginning of the last recession—no funds. • Also some concern over ability of agency to predict the employment levels for 2011 in each rate class for purposes of surcharging and crediting (collecting and refunding) FUTA.

  6. Risks of Delaying Loan Repayment • Recessions occurring approximately every 7 years in modern economic history. • By 2016, if benefits trend up, we’d still be repaying loan and interest from recession 2008-2011. • Contributions would spike again to prevent further borrowing potentially creating a downward recessionary spiral.

  7. 2016 Scenario 15 • $417m benefits (spikes up $100m) • $150m continued loan repayment • $6.0m continued interest payment • $90m cushion against further FUTA increases. • Total: $663m • Trust Fund: $0 Current • $317m benefits • $200m trust fund building • Would shift $100m to spiked benefit charges. • Total: $517m • Trust Fund: +$159m Current plan provides better cushion for potentially higher benefits during next recession.

  8. Cost Comparison: 2016 Mild Recession Notice, rates spike up over $300 per worker compared to non-recession projections in slide 4.

  9. Anomaly • Approximately 2,800 firms in classes 13-20 with positive 7-year balance. • Projected tax revenue from firms $44 million • Projected tax revenue if capped at class 12 $21 million • Would have to absorb difference. Believe cost savings implemented in 2010/2011 should enable fund to absorb lost revenue from fix.

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