Recently, the U.S. Department of Labor released data on how much each state “overpays” in unemployment insurance (UI) benefits.
Overpayments, as a practical matter, are common. Either through lack of enforcement of eligibility requirements or through poor verification procedures, states sometimes improperly send unemployment checks to those who may not be eligible.
If there are strong verification procedures in place, overpayments can be greatly reduced. Yet, it appears that in Arizona, those safeguards are either absent or ineffective. Arizona had the fifth highest overpayment rate in the U.S. between July 2010 and June 2011, overpaying by $132 million. That’s an overpayment rate of 21.6 percent — almost twice the national average of 11.2 percent.
Why does that matter? Arizona has borrowed more than $300 million from the federal government since March 2010 to pay benefits to the state’s unemployed. If the state had been more diligent, the amount borrowed could have been almost cut in half.
Overpayments also put a strain on employers. Unemployment insurance is funded by taxing employers and if the fund doesn’t take in enough money to pay unemployment checks, taxes on employers go up too. There is a direct cost to employers that could be reduced if the state had better unemployment eligibility verification in place.
The unfortunate thing is that this is no surprise: An audit of the Arizona Department of Economic Security’s UI division concluded that “the Division’s accuracy rate in determining whether claimants are eligible for UI benefits is significantly below [U.S. Department of Labor] standards and national averages.” That audit occurred in 2005 and there hasn’t been one since.
Much can be done to reduce overpayment of unemployment benefits and reducing the cost of this program to those who fund it, starting with another audit of the eligibility verification process.
Keeping government-imposed costs of employing workers low should be part of Arizona’s economic development strategy. But the legislature must fix our broken unemployment insurance system.
Stephen Slivinski is senior economist for the Goldwater Institute.
Wall Street Journal: Billions in unemployment benefits paid in error
Office of the Auditor General: Performance Review of Arizona’s Unemployment Insurance Program (2005)