Unemployment Insurance: States' Tax Financing Systems Allow Costs
to Be Shared among Industries (26-JUL-06, GAO-06-769).		 
                                                                 
In 2006, the Unemployment Insurance (UI) program is expected to  
collect over $37 billion in taxes from employers to pay $34	 
billion in benefits to unemployed workers. Under state UI	 
programs, employers' tax contributions are experience-rated--that
is, they reflect the extent to which they laid off workers who	 
then collected benefits. To examine the equity of this system, we
met with officials from five states, reviewed prior studies, and 
examined state data to determine (1) how states ensure that	 
employers pay UI taxes based on their experience with		 
unemployment, and the aspects of state unemployment insurance	 
systems that limit experience rating; (2) the extent to which	 
employers pay unemployment insurance taxes commensurate with	 
unemployment benefits paid to their former employees; and how	 
this varies by industry; and (3) steps states could take to	 
increase the degree of experience rating. We provided a draft of 
this report to the Department of Labor (Labor) for its review.	 
Overall, Labor agreed with our findings.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-769 					        
    ACCNO:   A57488						        
  TITLE:     Unemployment Insurance: States' Tax Financing Systems    
Allow Costs to Be Shared among Industries			 
     DATE:   07/26/2006 
  SUBJECT:   Comparative analysis				 
	     Program management 				 
	     State taxes					 
	     State-administered programs			 
	     Tax administration 				 
	     Unemployment compensation programs 		 
	     Unemployment insurance				 
	     Unemployment rates 				 
	     Payroll deductions 				 
	     Unemployment Insurance Program			 

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GAO-06-769

                 United States Government Accountability Office

Report to the Chairman, Subcommittee

GAO

on Human Resources, Committee on Ways and Means, House of Representatives

July 2006

UNEMPLOYMENT INSURANCE

    States' Tax Financing Systems Allow Costs to Be Shared among Industries

GAO-06-769

UNEMPLOYMENT INSURANCE

States' Tax Financing Systems Allow Costs to Be Shared among Industries

  What GAO Found

All state Unemployment Insurance-financing systems are experience-rated,
but several aspects of these systems limit the connection between an
employer's tax contributions and the employer's experience with
unemployment. For example, a state's maximum tax rate limits the size of
an employer's tax payment, regardless of the costs an employer may have
imposed on the system. Similarly, a minimum tax rate ensures that an
employer's tax rate will not drop below a specified floor, no matter how
much its experience rating improves. Other aspects of state systems allow
the cost of some benefits to be charged to all employers rather than to a
single employer. These shared costs include, for example, benefits paid to
unemployed workers of a firm that has gone out of business. When the cost
of benefits is shared in this way, it reduces experience rating and
imposes additional costs on all employers.

A series of studies that examine experience rating in state UI systems
show that a number of industries used more in benefits than they paid in
taxes to finance the system. Certain industries, such as construction and
agriculture, forestry, and fisheries, as a whole, consistently received
such subsidies, while other industries, such as finance, insurance, and
real estate tended to pay subsidies. Newer firms that are not yet
experience-rated, regardless of industry, also tend to pay subsidies. Our
analysis of more recent data from three states found a similar pattern of
subsidies.

States could increase experience rating and reduce subsidies by adjusting
aspects of the unemployment insurance tax structure, such as the maximum
tax rate. However, each of these adjustments has trade-offs that would
have to be considered by a state because the adjustments would raise costs
for some employers or reduce costs for others. In addition, such
adjustments would have to be evaluated based on the implications for other
policy objectives established for a state's unemployment insurance
program.

Unemployment Insurance Benefits Charged and Taxes Paid by Selected
Industries in Washington State from 1999 to 2004

                 United States Government Accountability Office

Contents

  Letter 1

Results in Brief 2 Background 4 States' Unemployment Insurance Financing
Systems Limit the

Degree of Experience Rating 6 State UI Tax Policies Result in Persistent
Cross-subsidization

among Firms and Industries 18 Measures to Improve Experience Rating and
Reduce Subsidies

Must Be Balanced against Other Goals 27 Concluding Observations 31 Agency
Comments and Our Evaluation 32

Appendix I Objectives, Scope, and Methodology

Appendix II Example of a State's Unemployment Insurance Tax Products

Appendix III Comments from the Department of Labor

Appendix IV GAO Contacts and Acknowledgments

Related GAO Products

  Tables

Table 1: Comparison of Reserve Ratio and Benefit Ratio

Approaches 7 Table 2: Minimum Tax Rates, Maximum Tax Rates, and Taxable

Wage Bases of State Unemployment Insurance Programs 11 Table 3: Summary of
Findings of Cross-subsidization among

Industries from Literature Review 19 Table 4: Cross-subsidization among
Industries in Washington State,

1989 to 1999 21

              Table 5: Industries Ranked by Benefit-Tax Ratio for Selected 24 
                                                                    States 
              Table 6: California Unemployment Insurance Tax Schedules     36 
           Table 7: Basis for Rate Schedule Used                           37 
Figures                                                                 
                Figure 1: Tax Rates and Reserve Ratios in California       13 
               Figure 2: Unemployment Insurance Benefits Charged and Taxes 
                 Paid by Selected Industries in Washington State from 1999 
           to 2004                                                         25 

Abbreviations

ERI                Experience Rating Index                                 
FUTA               Federal Unemployment Tax Act                            
GAO                Government Accountability Office                        
NAICS                        North American Industry Classification System 
SIC                Standard Industrial Classification System               
UI                 Unemployment Insurance                                  

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
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separately.

United States Government Accountability Office Washington, DC 20548

July 26, 2006

The Honorable Wally Herger Chairman Subcommittee on Human Resources
Committee on Ways and Means House of Representatives

Dear Mr. Chairman:

Unemployment compensation is a social insurance program designed to
partially replace the lost wages of individuals who become involuntarily
unemployed and to stabilize the economy in times of economic recession. In
partnership with the federal government, individual states administer the
Unemployment Insurance (UI) program and fund benefits through payroll
taxes levied on employers. In 2006, employers are projected to make state
unemployment tax contributions of over $37 billion, and an estimated $34
billion will be paid in benefits to unemployed workers.

All state UI systems are experience-rated so that employers' contribution
rates are risk-based, and nearly all vary according to how much or how
little their workers received unemployment benefits. In principal, this
means that an employer who lays off many workers that claim unemployment
insurance benefits will pay more in taxes than an employer that lays off
fewer workers that claim benefits. However, very limited federal guidance
governs how states are to implement the experiencerating provision.
Further, because unemployment programs serve as social insurance programs,
it is generally recognized that some high-layoff employers may, over time,
pay less in taxes than benefits paid to their former workers, while other
employers may pay more.

Wanting to know about the equity of state systems of unemployment
insurance financing, you asked that we explore how the taxes that pay for
the system are distributed among employers. Specifically, we addressed the
following questions:

1. How have states ensured that individual employers pay unemployment
insurance taxes based on their experience with unemployment, and what
aspects of state unemployment insurance systems limit such experience
rating?

                                Results in Brief

1. To what extent do employers pay unemployment insurance taxes
       commensurate with unemployment benefits paid to their former
       employees, and how does this vary by industry?
2. What steps could states take if they wished to ensure that the taxes
       paid by individual firms more closely matched the benefits paid to the
       former employees of each firm?

To answer the first and third questions, we reviewed pertinent literature
and interviewed Department of Labor (Labor) officials and officials of
national organizations representing the perspectives of business, labor,
and state unemployment insurance agencies, as well as nationally
recognized experts on unemployment insurance. We also conducted indepth
interviews with representatives of unemployment insurance agencies in five
states-California, Illinois, Michigan, Texas, and Washington. We selected
these states because they are relatively populous and geographically
dispersed, and because they take different approaches to ensuring
experience rating. We discussed each state's approach to financing
unemployment insurance benefits, and the implications that various aspects
of these systems had for experience rating and the existence of
cross-subsidies. In addition, we reviewed pertinent documents describing
the unemployment insurance-financing systems in each of these five states.
To answer the second question, we identified and reviewed 10 studies
published between 1972 and 2000 that measured how closely taxes paid by
firms and industries matched the benefit costs they imposed. We confirmed
with the Department of Labor and national experts on unemployment
insurance that these 10 studies constituted the definitive work done to
date on this subject. To supplement these studies, we obtained data on tax
and benefits payments by industry type from three of the five selected
states. We determined that the data were sufficiently reliable for our
purposes. See appendix I for more details on scope and methodology.

We conducted our work between September 2005 and June 2006 in accordance
with generally accepted government auditing standards.

Results in Brief

All states have established experience-rated unemployment insurance
financing systems, but several aspects of these systems limit the
connection between an employer's tax contributions and the employer's
experience with unemployment. In nearly all states, unemployment insurance
taxes are based on some measure of benefits paid to a firm's former
workers. However, over time, taxes may not equal benefits for

    Page 2 GAO-06-769 Unemployment Insurance

several reasons. Some aspects of state systems limit firms' tax payments.
For example, a state's maximum tax rate limits the size of an employer's
tax payment, regardless of the costs an employer may have imposed on the
system. Similarly, minimum tax rates ensure that an employer's tax rate
will not drop below a specified floor, no matter how much its experience
rating improves. Other aspects of state systems cause significant portions
of total benefit payments to become "shared"-that is, to become a common
cost of all firms. For example, under some conditions, states pay benefits
but do not attribute those benefits to a specific employer. One type of
such a "noncharge" is a benefit payment made that is finally reversed, but
not recovered. Such shared benefit costs reduce experience rating and
impose additional costs on all employers. The manner in which states
distribute the cost of these benefits, in order to recoup them, also
affects the match between taxes paid and benefits charged to each
employer.

Studies performed since the 1970s show that considerable
crosssubsidization exists among firms and industries in states'
unemployment insurance systems. Certain industries, such as construction
and agriculture, forestry, and fisheries, as a whole, consistently pay
less in unemployment insurance taxes than in benefits received by their
former employees, which is likely due to the cyclical or seasonal nature
of these industries. In some cases, the differences between taxes paid and
benefits received can be substantial. For example, our analysis of
1999-to-2004 data from Illinois shows that firms in the construction
industry paid more than $1 billion less in unemployment insurance taxes
than the unemployment benefit costs charged to them. Other industries, in
particular finance, insurance, and real estate, tend to have more stable
or growing employment and pay overall subsidies. Yet studies using
firm-level data have also found that there is a considerable amount of
cross-subsidization within industries. For example, although construction
is found to be the most consistently subsidized industry, an
intra-industry analysis using data from Texas finds that the majority of
firms within that industry are paying more in taxes than in benefits
received by their former employees. In addition, newer firms that are not
yet experience-rated, regardless of industry, tend to pay subsidies.

States could increase experience rating and reduce cross-subsidies by
adjusting aspects of the unemployment insurance tax structure, such as the
maximum tax rate and the taxable wage base. However, each of these
adjustments has trade-offs that would have to be evaluated by a state
because these adjustments would raise costs for some employers or reduce
costs for others, and have implications for other policy objectives

                                   Background

established for a state's unemployment insurance program. For example,
according to officials of the California Employment Development
Department, the state's current unemployment insurance-financing system
was explicitly developed so that high-unemployment industries important to
the state's economy-specifically, construction and agriculture-would not
bear the full cost of benefits paid to workers in those industries.
Consequently, while raising the maximum tax rate would make these
employers pay a more equitable share, it could conflict with other state
policy goals.

We provided a draft of this report to the Department of Labor for its
review. Overall, Labor agreed with our findings.

Labor also provided technical comments on the draft report, which we have
incorporated where appropriate.

Background

The unemployment insurance program was established in 1935 to (1) give
workers temporary and partial insurance against income loss during
unemployment for which they are not at fault, and (2) to help stabilize
the nation's economy in economic downturns by maintaining workers'
purchasing power. The program operates as a partnership between the states
and the federal government. 1 Under this arrangement, Labor provides broad
policy guidance and program direction, while the states design and
implement specific program details. Within certain limits, states have
broad autonomy in carrying out their basic program operations. They decide
the requirements that unemployed workers must meet for eligibility, the
amount of benefits, and the length of time they will pay benefits. They
also decide on the tax rates employers must pay on their payrolls.
Further, states can and do make changes in these and other aspects of
their unemployment insurance system. As a result, state eligibility
requirements, benefit levels, payroll tax rates, and trust fund balances
vary, reflecting variations in program decisions and the economic fortunes
of each state.

Federal and state payroll taxes on employers finance the UI program. The
federal government uses the proceeds from its payroll tax to (1) pay for
all

1

We use the term "states" to refer to the administrative entities of the 53
unemployment insurance programs that cover the 50 states, the District of
Columbia, Puerto Rico, and the Virgin Islands.

Page 4 GAO-06-769 Unemployment Insurance

program administrative costs and one-half of extended benefit payments and
(2) maintain a loan account from which financially troubled states can
borrow funds to pay UI benefits. 2 The gross federal tax rate is 6.2
percent on the first $7,000 paid annually by employers on each employee.
If a state meets federal requirements, and has no delinquent federal
loans, however, its employers are eligible for up to a 5.4 percent credit,
making the net federal tax rate 0.8 percent. To receive the maximum
federal tax credit, states must, among other things, establish a taxable
wage base for state UI taxes at least equal to the federal wage
base-currently $7,000.

Most of the funds used to pay UI benefits come from the states, which levy
a payroll tax on employers to finance regular UI benefits and one-half of
extended benefits. States generally structure their UI taxes to include
several tax rate components or schedules. In accordance with federal law,
within a tax schedule, an employer's tax rate will vary according to the
firm's experience in laying off workers who subsequently receive UI
benefits, commonly called their experience rating. 3 Those firms with many
unemployed workers receiving UI benefits will generally pay a higher UI
tax rate than firms with few workers receiving unemployment insurance.
These tax rate schedules also vary according to some measure of a state's
trust fund balance, with the highest tax schedules generally applying when
state fund balances have fallen below a specified level. Each state
maintains its own trust fund with the U.S. Treasury that is used for
depositing program income and from which UI benefits are paid.

The experience-rating aspect of the unemployment insurance systems is
unique in the world-the United States is the only nation that finances its
UI system though an experience-rated tax. The objectives of experience
rating are (1) the prevention of unemployment by inducing employers to
stabilize their operations and thus their employment, so as to reduce
their

2

The federal tax includes a 0.2 percent surtax to reimburse the general
fund for extended or supplemental benefits paid in the 1974-1975
recession. Repayment was completed in 1987, but the surtax has been
extended through 2007.

3

Under federal law, states are not granted the 5.4 percent credit on the
federal tax unless their UI system is experience-rated. Specifically, the
law states that a state may not offer reduced tax rates to an employer
"except on the basis of his (or their) experience with respect to
unemployment or other factors bearing a direct relation to unemployment
risk during not less than the three consecutive years immediately
preceding the computation date" (26 U.S.C. S: 3303(a)(1)). States may also
have reduced rates for newly subject employers on a reasonable basis.

tax rates, and (2) the equitable allocation of costs of unemployment
benefits. .

  States' Unemployment Insurance-Financing Systems Limit the Degree of
  Experience Rating

Although all state and territorial unemployment insurance programs base an
employer's tax rates on its experience with unemployment, the design of
each state's financing system also limits the degree of experience rating.
Nearly all state programs, for example, base tax rates on some measure of
benefits paid to a firm's former workers. However, all states have a
maximum tax rate that limits the financial liability of an employer,
regardless of the amount of benefits paid to a firm's former employees. As
a result, some employers will, over time, pay less than the full costs of
benefits attributed to them. Also, some benefits are paid but not charged
to an individual employer, partly because the employer is not at fault.
These and other design features allow an employer's total tax payments to
vary from total attributed benefits, over time.

    Nearly All States Base Experience-Rated Tax Rates on Benefits Paid to a
    Firm's Former Workers

All state unemployment insurance programs adjust the tax rates of
individual firms on the basis of their experience with unemployment, and
50 of the 53 4 systems do so based on one of two basic systems-the reserve
ratio system or the benefit ratio system.

In these 50 states, when unemployment insurance benefits are paid to a
worker, the value of those benefits is "charged" to the worker's former
employer or employers. 5 Under both systems, benefits payments charged to
a firm over a defined period of time become a key basis for an employer's
experience rating. However, the reserve ratio system and the benefits
ratio system also have important differences.

Under the reserve ratio system-used by 33 state and territorial
unemployment insurance programs-states set up an account for each
experience-rated employer. All taxes paid by an employer are credited to
this account, and benefits to a firm's former employees are debited from
this account. Ordinarily, this balance-or "reserve"-is carried forward

4

Two states-Delaware and Oklahoma-use a system known as the
benefit-wage-ratio system, and Alaska uses a system known as the payroll
variation plan.

5

States have different practices regarding the charging of benefits-some
states charge benefit payments only to the most recent employer; others
charge multiple employers, either in reverse chronological order or in
proportion to the wages paid during the base period. Further, in some
situations, benefits are paid but are not charged to a specific employer.

from year to year. 6 The balance of this account is positive if cumulative
tax payments are larger than cumulative benefits charged, and negative if
cumulative tax payments are smaller than cumulative benefits charged. In
each year, each employer's experience rating-the reserve ratio-is
developed by dividing the firm's reserve balance by a measure of the wages
paid by the firm-in most cases, an aggregate or average of 3 years'
taxable wages. Table 1 illustrates the calculation of an experience rating
using the reserve ratio method.

Table 1: Comparison of Reserve Ratio and Benefit Ratio Approaches
Reserve ratioa                                 Benefit ratiob
Formula                        
Taxes paid minus benefits charged        Benefits charged over 4 years
Average of 3 years' wages            Total wages over 4 years
Relationship to tax rates      
The lower the reserve ratio, the       The higher the benefit ratio, the
higher the tax rate                           higher the tax rate
Examples                       
Reserve ratio range:               Tax Benefit ratio range:            Tax 
                                    rates                               rates 
Maximum tax: Below -0.11         5.4   Maximum tax: Above 0.0575.   5.4    
Midpoint: 0.01 to 0.02           4.0   Midpoint: 0.0225 to 0.02375  2.65   
Minimum tax: 0.2 or more         0.7   Minimum tax: below 0.000001  0      

Source: GAO analysis of California and Washington state UI financing
systems.

a

The reserve ratio example is from one of the tax schedules used in
California. In California, different schedules may be used from year to
year, depending on the balance of the UI reserve fund. In California, the
formula also includes some credits to an employer's account in addition to
taxes paid, and some deductions in addition to benefits charged.

b

The benefit ratio example is from the tax rate schedule used by Washington
state. In Washington, a single schedule is used, but rates can be adjusted
each year by factors that account for the size of social costs or fund
solvency.

The benefit ratio approach, used by 17 of the 53 state and territorial UI
systems, does not consider employers' tax contributions, but only benefits
charged over a defined period, usually 3 years. As with the reserve ratio
system, benefit charges are divided by a measure of the firm's total
wages, such as payroll over 3 years. Table 1 illustrates the calculation
of an experience rating using the benefit ratio method.

In some states, the contributions and benefits taken into account are
limited to those since a certain date. For example, in Rhode Island, they
are limited to those since October 1, 1958.

Page 7 GAO-06-769 Unemployment Insurance

Once a state has established an employer's experience rating as measured
by the reserve ratio or the benefit ratio for a tax year, these experience
ratings are used to determine an employer's tax rate. In general the basic
tax rate is determined through use of a tax rate schedule, and in some
states through use of a formula. The basic experience-rated tax rate can
also be adjusted in response to other considerations, such as the solvency
and financial health of the trust fund or to cover shared costs. As table
1 illustrates, employers with high reserve ratios pay relatively low tax
rates, and those with low reserve ratios, especially employers with
negative reserve ratios, pay relatively high taxes. Conversely, the higher
a benefit ratio, the higher an employer's tax rate.

Each year, an employer's tax payment is calculated by multiplying the tax
rate by the employer's taxable wage base. Under federal law, the taxable
payroll must be at least the first $7,000 in wages paid to each employee,
but state taxable payrolls vary from this minimum up to $32,300.

In any given year, both the reserve ratio and the benefit ratio systems
allow for considerable differences between tax payments and benefit
charges. In theory, unemployment insurance programs rely on a
forwardfunded approach. Typically, the trust fund is replenished when tax
payments exceed benefit payments during times of low unemployment.
Conversely, trust funds are depleted during times of high unemployment
because benefit payments exceed tax revenue. By design, higher tax
payments lag behind increased benefit payments, in part so that employers
are not burdened with higher tax rates during times of economic
difficulty. Because the reserve ratio is based on the full history of an
employer's benefit charges and tax payments, it will change less abruptly
because of an increase or decrease in benefit payment than the benefit
ratio. However, both are designed to partly recoup charged benefits and
ensure some degree of equity among employers over multiple years.

    Several Aspects of State UI Systems Limit the Linkage between Tax Rates and
    Benefits Paid to a Firm's Former Workers

Benefit Write-offs and the Time Value of Money

Although the large majority of state UI systems have implemented
experience-rated systems that ensure a linkage between taxes paid and
benefits charged, several aspects of state UI systems limit this linkage.
As a result, state UI systems are only partly experience-rated, and a
firm's UI tax payments can be substantially determined by factors other
than benefits charged. 7

Although benefit ratio and reserve ratio systems establish, for each
employer, a basis for a tax rate linked to benefits charged, they both
have important limitations in this regard. First, benefit ratio and some
reserve ratio systems do not have perfect memories of benefits charged.
Typically, benefit ratio systems consider benefit payments over the
previous 3 years. For example, benefit payments, charged to a firm in
years prior to the 3-year range, even if not fully recaptured in tax
payments, are not considered in calculation of taxes for future years.
Similarly, while reserve ratio systems generally are supposed to reflect
the balance between all benefits charged and all taxes paid since
enactment of a state's unemployment insurance law, this does not always
occur in practice. Six of the 33 states that use the reserve ratio system
have provisions for effectively writing off benefit charges if the firm's
reserve balance or reserve ratio sinks below a certain level. 8 For
example, the California unemployment insurance program writes off benefit
charges if an employer has a negative balance that would otherwise exceed
21 percent of average taxable payroll during the last 3 calendar years.
When these negative balances are forgiven, the benefit charges are
effectively erased from the record of an individual firm. In both the case
of a reserve ratio or a benefit ratio system, benefits that were once
attributable to an individual firm become the common burden of all
employers.

A second major factor that limits the degree of experience rating is that
these systems do not take into account the time value of money. For
example, employers in a state using the reserve ratio approach may-by
consistently paying less in taxes than the amount of chargeable benefits
paid to former workers-carry a significant and growing negative balance

7

To some extent, these departures from experience rating are an outgrowth
of various changes that have been made to state systems over the years
that have typically been established based on negotiations between
business and labor interests.

8

Pennsylvania uses both a reserve ratio and a benefit ratio component in
determining employer tax rates. The state also writes off benefit charges
for the reserve ratio component.

Page 9 GAO-06-769 Unemployment Insurance

                               Maximum Tax Rates

for many years. Because states maintain records in nominal dollars, such
negative balances understate the real cost that such employers have
imposed on the state's unemployment insurance trust fund. Conversely,
employers that consistently maintain significant positive account balances
are not compensated for these balances-the nominal balance understates the
real contribution such employers have made to the state's trust fund. 9
The same effect may occur in states using the benefit ratio system, but
because of the 3-year time horizon on the benefits that affect the tax
rates, there is less potential for this practice to have a large
cumulative effect.

Maximum Tax Rates

While all states vary an employer's tax rate on the basis of experience
rating, all states have also established maximum tax rates that limit an
employer's tax liability. In accordance with federal guidelines, states
must have a maximum tax rate of at least 5.4 percent. However, as table 2
indicates, maximum tax rate policies differ markedly from state to state-
ranging from 5.4 percent in 13 states to 15.4 percent in Massachusetts. 10

9

According to Labor, South Dakota does charge interest to negative balance
employers. Further, 16 states credit interest earned on their trust find
balances back to employers in some way.

10

The actual maximum tax rate in a state can change from one year to the
next, because of the use of different schedules or changes in factors used
to calculate a tax rate by formula.

Page 10 GAO-06-769 Unemployment Insurance

 Table 2: Minimum Tax Rates, Maximum Tax Rates, and Taxable Wage Bases of State
                        Unemployment Insurance Programs

Minimum Maximum Taxable Minimum Maximum Taxable State tax tax wage base
State tax tax wage base

                  Alabama 0.65 6.8 $8,000 Nebraska 5.4 $7,000

                 Alaska 1.0 5.4 $27,900 Nevada 0.25 5.4 $22,900

Arizona New

2.85 5.4 $7,000Hampshire 2.8 6.5 $8,000

              Arkansas 0.9 10.8 $10,000 New Jersey 1.2 7.0 $24,900

              California 1.3 5.4 $7,000 New Mexico 2.7 5.4 $17,200

                Colorado 1.0 5.4 $10,000 New York 0.9 8.9 $8,500

Connecticut North

1.5 6.9 $15,000Carolina 0 5.4 $16,700

                Delaware 0.1 9.5 $8,500 North Dakota 0.1 $19,400

            District of Columbia 1.9 7.4 $9,000 Ohio 0.1 6.7 $9,000

               Florida 0.001 6.4 $7,000 Oklahoma 0.5 5.5 $13,800

                Georgia 0.05 10.8 $8,500 Oregon 2.2 5.4 $27,000

            Hawaii 2.4 5.4 $32,300 Pennsylvania 1.0225 10.59 $8,000

                Idaho 2.4 6.8 $28,000 Puerto Rico 2.5 5.4 $7,000

             Illinois .2 9.0 $10,500 Rhode Island 1.9 10.0 $16,000

Indiana South

1.1 5.6 $7,000Carolina 1.24 6.1 $7,000

                Iowa 0 9.0 $20,400 South Dakota 1.5 10.5 $7,000

                Kansas 0.01 7.4 $8,000 Tennessee 0.5 10.0 $7,000

                  Kentucky 1.0 10.0 $8,000 Texas 0 6.0 $9,000

                 Louisiana 0.3 6.0 $7,000 Utah 0.1 9.0 $23,200

                  Maine 2.4 7.5 $12,000 Vermont 1.3 8.4 $8,000

                Maryland 2.3 9.5 $8,500 Virginia 0.3 6.4 $8,000

             Mass. 1.58 15.4 $14,000 Virgin Islands 0.1 9.5 $18,600

              Michigan 1.0 10.0 $9,000 Washington 2.47 5.4 $30,500

             Minnesota 0.6 9.5 $23,000 West Virginia 1.5 8.5 $8,000

             Mississippi 0.1 5.4 $7,000 Wisconsin 0.27 8.9 $10,500

                  Missouri 0 8.7 $11,000 Wyoming 0 8.5 $16,400

                           Montana 1.67 6.37 $21,000

Source: Comparison of State Unemployment Laws, 2005, U.S. Department of
Labor.

Note: In those cases where cells are empty, no state data were available.
The maximum and minimum tax rates in this table are based on the "least
favorable" scenario, that is, the highest maximums and minimums. Depending
on the condition of the state's trust fund and other factors, in a given
year, the actual maximum and minimum tax rates may be lower than these
rates. For example, 28 states have higher maximum tax rates on the least
favorable schedule than on the most favorable schedule. The differences
range from less than a percentage point to more than 7 percentage points.

The maximum tax rate may cause a departure from experience rating in
certain circumstances for two reasons. First, as a result of maximum tax
rates, firms with very different experience ratings will be assessed the
same tax rate. For example, an employer that is just at the threshold of
the maximum tax rate will pay the same tax rate as an employer whose
experience rating indicates a much greater propensity to lay off workers.
Figure 1 illustrates this effect using an example from California.
According to one of the tax schedules used in that state, all employers
with reserve ratios of -0.11 or less pay at the maximum tax rate of 5.4
percent. Consequently, an employer with a reserve ratio of -0.20 or worse
will pay the same tax rate as an employer with a reserve ratio of -0.11.

Figure 1: Tax Rates and Reserve Ratios in California

The second departure from experience rating occurs because the maximum tax
rate causes some firms to pay considerably less in taxes than benefits
charged. Because of the maximum tax rate, it is possible that an employer
will continue to pay less in taxes than benefits charged year after year.
For example, an Illinois firm with 100 employees at a maximum tax rate of
9.0 percent and a taxable wage base of $10,500 per employee will pay a
total of $94,500 in taxes in a year. Assuming this employer laid off 15
workers who each earned $673 per week, each worker would qualify for
unemployment insurance benefits of about $8,400, or a total of about
$126,000. 11 In a single year, the employer's workers would receive about
$31,500 more in benefits than taxes paid by the employer. If this pattern
continues for multiple years, the maximum tax rate would prevent the

11

In Illinois, a worker generally receives benefits equal to about 48
percent of base period wages. This scenario assumes that each worker
collects benefits for the full 26 weeks permitted.

Page 13 GAO-06-769 Unemployment Insurance

                               Minimum Tax Rates

                              Tax Rate Increments

employer's tax contributions from increasing, and the difference between
benefits charged and taxes paid may become a permanent subsidy to the
employer.

In conjunction with the maximum tax rate, employers' tax contributions are
also limited by the level of the taxable wage base set by the state.
Because an employer's tax rate is multiplied by its taxable wage base to
determine its tax payments, an employer paying at a given tax rate will
pay less tax than an employer at the same tax rate with a higher taxable
wage base. While federal law requires a $7,000 minimum taxable wage base,
table 2 shows that taxable wage bases vary significantly from state to
state, ranging from the $7,000 minimum in nine states to $32,300 in
Hawaii.

Minimum Tax Rates

Just as states set maximum tax rates, most states also set minimum tax
rates greater than zero. Minimum tax rates ensure that an employer's tax
rate will not drop below a specified floor, no matter how much its
experience rating improves. Consequently, employers with significantly
different experience ratings may have the same tax rate. Figure 1
illustrates that employers with a reserve ratio greater than 0.20 would
pay at the minimum rate of 0.7 percent. As table 2 shows, minimum tax
rates even at the highest rate schedules vary widely among the states-from
zero in five states to 2.85 percent in Arizona.

Tax Rate Increments

The method states use to assign an employer a tax rate, and the range of
possible tax rates between the minimum and the maximum tax, also affects
the degree to which a state UI system is experience-rated. Some states use
tax schedules to assign employers whose benefit ratio or reserve ratio
falls within a particular range a particular tax rate. Such schedules-if
they have relatively few tax rates and broad intervals between the
rates-can limit experience rating because employers with different
experience ratings will pay at the same tax rate. Also, if the difference
between one tax rate and the next is substantial, employers with nearly
identical experience ratings may pay significantly different tax rates. As
Labor noted in 1983 guidance to states, within the limits of the maximum
and minimum rates, the smaller the intervals between the variant rates,
the greater the effect of individual employer experience on the employer's
tax rate. 12 Further, numerous differential rates make the

12

Unemployment Insurance Program Letter to States, General Principles of
Experience Rating under Section 3303(a)(1), FUTA (Federal Unemployment Tax
Act),

U.S. Department of Labor, June 23, 1983.

Page 14 GAO-06-769 Unemployment Insurance

transition from one tax rate to another more equitable because two
employers with almost identical experience ratings could have different
tax rates if they are on either side of the border between two rates. More
tax rates will help ensure that the difference between one rate and the
next is smaller.

    Some Costs Are Shared among All Employers, a Fact That Contributes to
    Differences between Benefits Charged and Taxes Paid

State unemployment insurance funds bear some costs that cannot be
recovered from the individual employer that might otherwise be considered
responsible for such benefit costs. Such costs become the common burden of
all employers, and for this reason can be referred to as shared costs.
Such shared costs fall into three general categories:

(1) benefits that are charged to a specific active employer but are not
fully recovered from that firm in tax revenue, (2) benefits paid to former
employees of firms that have gone out of business and cannot make
additional tax payments, and (3) benefit payments made to workers that are
not charged to a specific employer.

Charged Benefits That Are Not Covered by Responsible
Employersâ Tax Payments.

Some aspects of state unemployment insurance programs prevent the tax
payments of some employers from matching charged benefits. For example, if
over multiple years, an employer's benefits charges amount to $50,000 but
because of a maximum tax rate, the firm pays only $43,000 in taxes, the
state must raise revenue to cover the costs of this difference. As a
result, such costs become the common burden of all firms in the
unemployment insurance system.

This aspect of shared costs can be a substantial portion of total benefits
paid. Labor publishes one measure of such costs, referred to as
ineffective charges. 13 In 2004, the most recent year for which data are
available, such ineffective charges ranged from 2.5 percent of total
benefits paid in North Dakota to 38.7 percent in Arizona. In other words,
only 2.5 percent of total benefits payments in North Dakota were charged
to active employers who did not pay taxes to cover these benefit costs. In
Arizona, 38 percent of all benefit payments were charged to active
employers, but not matched by commensurate tax revenue.

13

Labor reports ineffective charges as part of an overall measure of
experience rating known as the experience rating index, or ERI. The ERI
has important limitations as a measure of experience rating. In
particular, the measure of ineffective charges is made only for a single
year. It does not take into account that current-year benefits for some
employers lead to higher future tax payments.

Page 15 GAO-06-769 Unemployment Insurance

One of the states we contacted-California-has an alternate measure of such
shared costs. Under the state's reserve ratio method of experience rating,
the California Employment Development Department keeps track of annual
increases in negative balances for employers that have negative balances.
Each year, these increases to the negative balance are totaled and are
distributed to all firms in the UI system.

Benefits Charged to Inactive Firms

State unemployment programs also pay benefits to unemployed workers whose
former employer has gone out of business. In the event that the state
cannot collect commensurate tax revenue from these firms, the costs of
such benefit payments-known as inactive charges-must be borne by the UI
system, and ultimately by all other active firms. In 2004, inactive
charges ranged from 0.2 percent of benefits in Massachusetts to
19.5 percent of benefits in Nevada.

Noncharged Benefits

In some situations, state unemployment insurance programs will pay
noncharged benefits, that is, benefits paid to unemployed individuals but
not charged to the firms for whom the employees had worked. Because these
benefit payments are not associated with an individual employer, they
become the common burden of employers in state UI systems. Noncharged
benefit payments are allowed partly because of the belief that an employer
should not be charged for unemployment for which the employer was not
responsible. For example, many states pay unemployment benefits to a
worker who voluntarily quits a job and has not found another job after
some interval, or under certain conditions, such as compelling personal
reasons not attributable to the employer. Policies regarding noncharging
of benefit payments vary from state to state. 14 In addition to voluntary
resignations, common types of noncharges include benefits paid to
employees who were discharged for misconduct and benefit payments made in
situations where the benefit award is finally reversed. A few states will
not charge unemployment benefits paid to a worker hired to replace a
member of the armed services called into active duty and laid off upon the
service person's return.

Noncharged benefits can amount to a significant portion of total benefit
payments. In 2004, noncharged benefits in the states ranged from about 3
percent of total benefit payments in Colorado and New York to about

14

States that allow certain general categories may differ in the specific
provisions of such noncharges. For example, California and Nevada pay
benefits to persons who quit their last job to accompany a military
spouse, while some other states do not.

Page 16 GAO-06-769 Unemployment Insurance

32 percent in Maine. In 2004, noncharged benefits exceeded 10 percent of
total benefit payments in 34 states and over 20 percent of total benefits
in 7 states. Nationally, from 2001 to 2004, noncharges averaged between

10.0 percent and 13.3 percent of all benefits paid.

Method of Assessing Solvency and Social Cost Surcharges Affects Experience
Rating

In order to maintain the solvency of the state unemployment insurance
fund, state unemployment insurance agencies must collect tax payments to
cover shared costs, and must implement some technique of distributing this
tax burden among employers that pay in to the fund. States have
considerable flexibility in doing so, and our contacts with 5 states
indicated that practices may differ widely. Four of the 5 states that we
contacted-California, Michigan, Texas, and Washington-implement tax rate
adjustments specifically designed to distribute and recapture shared
costs, and each of the 5 implement adjustments in response to changes in
the state UI fund.

Tax rate adjustments-whether to recoup shared costs or to ensure fund
solvency-can have an effect on the degree of experience rating. For
example, Illinois makes two adjustments to employers' experience-rated tax
rates-the state experience factor and the fund-building rate. 15 Because
the state experience factor is multiplied by the employer's basic tax rate
as determined by an employer's benefit ratio, the relationship of the tax
rates among all employers does not change. On the other hand, Illinois
also adds a fund-building surcharge-in 2005 the fund-building rate was 0.9
percent (or $94.50 per employee)-to each employer's tax rate. Because this
amount is a flat add-on to the adjusted tax rate, it distorts experience
rating in that it changes an employer's experience-rated rate relative to
those of other employers. For example, an employer with a tax rate of 3
percent would now have a tax rate of 3.9 percent, an effective 30 percent
increase. On the other hand, an employer with a 5 percent tax rate would,
with the fund-building component added, now have a tax rate of

5.9 percent-an 18 percent increase. A similar effect could occur in
Michigan, which adds a flat 1 percent to the tax rate of each employer to
recoup the costs of nonchargeable benefits.

15

Illinois' state experience factor is designed to increase or decrease
experience-rated tax rates based on recent net gains or losses in the
state's UI fund. In 2005, for example, because benefits paid considerably
exceeded net revenues for the preceding 3-year period, the 2005 state
experience factor was 139 percent. The fund building rate is intended to
build up adequate reserves in the trust fund. This rate is set
statutorily, and was set at

0.9 percent in 2005, and at 0.8 percent for 2006 and 2007.

Page 17 GAO-06-769 Unemployment Insurance

  State UI Tax Policies Result in Persistent Cross-subsidization among Firms and
  Industries

Studies conducted over the past 34 years indicate that some industries
persistently pay less in unemployment insurance taxes than benefits paid
to their former workers, while others persistently pay more. The studies
we reviewed found that such cross-subsidies favor seasonal and cyclical
industries, such as construction and agriculture, forestry, and fisheries,
whereas firms in the finance, insurance, and real estate industry
regularly pay subsidies. Our analysis of more recent data from several
states finds similar evidence of cross-subsidization, with sometimes
substantial differences between taxes paid and benefits received. In
addition, research shows that there is a considerable amount of
cross-subsidization among firms within the same industry. Studies have
also found that new firms that are not yet experience-rated, regardless of
industry, tend to pay subsidies.

    Cross-subsidization Typically Favors Firms in Seasonal and Cyclical
    Industries Such as Construction and Agriculture

A series of studies examining data from the 1950s to the late 1990s have
found consistent cross-subsidization among industries in state UI systems.
16 The studies we reviewed refer to an excess in benefits received by
former workers compared to taxes paid by an employer as a subsidy. 17
Though these studies used varying methodologies, they have all compared
total unemployment insurance taxes paid by firms in a broad industry group
to total benefits paid to UI recipients from those industries over time.
18 As table 3 indicates, in many cases, studies of different states and
time periods show the same industries pay or receive subsidies.

16

In general, the studies we reviewed performed their analysis using two
digit Standard Industrial Classification (SIC) codes.

17

The studies we examined calculate subsidies in slightly different ways,
and the differing ways affect the size of the subsidy estimates.
Typically, studies estimated the size of the subsidy by comparing charged
UI benefits to total UI taxes paid by a firm. Other studies compared the
total of charged and noncharged benefits to taxes paid in their measures
of subsidies.

18

It is important to examine subsidies over multiple years, instead of only
for a single year, because the UI system is designed to recoup costs from
employers over multiple years. Single-year data may overestimate the
extent of cross-subsidization, particularly when the use of UI is related
to an unemployment shock and not persistent job turnover or layoffs.

Table 3: Summary of Findings of Cross-subsidization among Industries from
                               Literature Review

         Study Data Receive subsidies: Industry Pay subsidies: Industry

 O'Leary and others 28 states,  o  Construction  o  Financial service providers
                      2000 1998  o  Low-wage manufacturing

Vroman Washington state,  o  Construction  o  Finance, insurance, and real
estate 1989-1999  o  Agriculture, forestry, and fisheries

                                o  Manufacturing

Tannenwald and O'Leary Massachusetts,  o  Construction  o  Transportation,
communications, and 1997 1988-1996 public utilities

     o Trade
     o Finance, insurance, and real estate
     o Services

Anderson and Meyer 6 states,  o  Construction  o  Finance, insurance, and
real estate 1993a 1978-1984  o  Manufacturing  o  Retail trade

     o Mining  o  Services
     o Agriculture, forestry, and  o  Transportation fisheries  o  Wholesale
       trade

Anderson and Meyer 1993b 22 states,  o  Construction  o  Finance,
insurance, and real estate approximately 1980-1991  o  Manufacturing  o 
Trade

     o Mining  o  Services
     o Agriculture, forestry, and fisheries

Laurence Texas,  o  Construction  o  Finance, insurance, and real estate
1978-1982  o  Manufacturing  o  Mining and quarrying

                                  o  Services

Munts and Asher 21 states,  o  Construction  o  Finance, insurance, and
real estate 1968-1975  o  Manufacturing  o  Trade

     o Agriculture, forestry, and fisheries
     o Mining
     o Services

Topel 6 states,  o  Miscellaneous manufacturing  o  Primary and fabricated
metals 1971-1975  o  Apparel  o  Retail trade

                                o  Construction

Becker 15 states,  o  Construction  o  Finance, insurance, and real estate
1957-1967  o  Mining

o  Agriculture, forestry, and fisheries

Source: GAO analysis of relevant studies.

Notes: Data from states in Anderson and Meyer study (1993b) vary within
this time frame. Topel (1983) and O'Leary and others (2000) did not
include all major industrial categories in their studies.

Page 19 GAO-06-769 Unemployment Insurance

According to the studies, certain industries, such as construction and
agriculture, consistently received subsidies, which can be substantial.
Across different states and time periods studied, the construction
industry most consistently paid less in taxes than benefits paid to its
former employees. For example, one study examined industry groups over a
12-year period, from 1980 to 1991, for 22 states and found that the
construction industry received the largest subsidy. 19 To compare the
relative size of subsidies, the study calculated a summary benefit-tax
ratio for each industry averaged across states by dividing benefits
received by total UI taxes paid. 20 The ratio of 1.68 averaged across 22
states indicates a large subsidy to the construction industry-as a whole,
employers in this industry paid about $1 for every $1.68 in benefits
received by their former workers. A more recent study of Washington
state's UI program also examined cross-subsidization among industries over
an 11-year period and found the construction industry received the largest
subsidy, as indicated by the benefit-tax ratios reported in table 4. 21
The total taxes paid by construction firms covered 77 percent of charged
benefits over this time period.

19

Patricia M. Anderson and Bruce D. Meyer, "The Unemployment Insurance
Payroll Tax and Inter-industry and Interfirm Subsidies," in Tax Policy and
the Economy, Ed., James M. Poterba, Cambridge, Massachusetts: MIT Press,
1993, pp. 111-144.

20

A benefit-tax ratio equal to 1 means that an employer is paying exactly
the amount of taxes as benefits received by their former workers.
Similarly, an employer or industry with a benefit-tax ratio greater than 1
is receiving a subsidy, while an employer or industry with a ratio less
than 1 is paying a subsidy.

21

Wayne Vroman, Unemployment Insurance Tax Equity in Washington, Report No.
3, Washington, DC: The Urban Institute, January 1999.

Table 4: Cross-subsidization among Industries in Washington State, 1989 to
1999                         
Dollars in millions          
Industry                     Benefits charged Taxes paid Benefit-tax ratio 
Agriculture, forestry, and        318.6         282.7                 1.13 
fisheries                                                
Mining                             19.5          18.4                 1.06 
Construction                      916.4         701.7                 1.31 
Manufacturing                     982.4         1334.9                0.74 
Transportation,                   251.4         381.2                 0.66 
communication, and utilities                             
Wholesale trade                   315.8         481.1                 0.66 
Retail trade                      398.5         735.0                 0.54 
Finance, insurance, and real      199.0         338.2                 0.59 
estate                                                   
Services                          677.8         1027.0                0.66 

Source: Wayne Vroman, Unemployment Insurance Tax Equity in Washington,
Report No. 3, Washington, D.C.: The Urban Institute, January 1999.

Note: The benefit-tax ratio is equal to charged benefits divided by total
taxes paid.

Although cross-subsidization is found to most consistently favor firms in
the construction industry, other industries also tend to benefit. The
majority of these studies found that firms in agriculture, forestry, and
fisheries receive subsidies. As shown in table 4, for instance, the study
of Washington state found that this industry received the second largest
subsidy from 1989 to 1999. Charged benefits exceeded total taxes paid by
about 13 percent. 22 In addition, several of the studies report that firms
in manufacturing and mining industries also tend to receive subsidies. For
example, the mining and manufacturing industries on average received 37
percent and 9 percent more in benefits than in taxes paid, respectively,
according to the study of 22 states.

Conversely, other industries, in particular finance, insurance, and real
estate consistently pay more in taxes than their former employees receive
in UI benefits, according to studies reviewed. Data from all of the
studies that examine cross-industry subsidies and include the finance,
insurance, and real estate sector indicate that firms in this industry pay
a subsidy, which is often substantial. The study which used data from 22
states to calculate a combined average benefit-tax ratio for each industry
concluded

Although agriculture, forestry, and fisheries received a relatively large
subsidy proportional to taxes paid, it tends to be one of the smallest
sectors of the economy. Thus, the industry's overall contribution to
cross-subsidization may not be as great as other, larger sectors that also
receive subsidies.

Page 21 GAO-06-769 Unemployment Insurance

that the finance, insurance, and real estate industry received about half
the taxes it paid in benefits to its former workers, which was the largest
subsidy paid by any industry. While firms in the finance, insurance, and
real estate industry most consistently pay a subsidy to the UI program,
overall, many other industries also tend to pay subsidies, although not in
every state and time period studied. These industries include wholesale
trade, services, retail trade, transportation, communications, and public
utilities.

While some industries tend to receive or pay subsidies over time and in
different states, other industries do not show a consistent pattern. An
industry may receive a subsidy in one state and pay a subsidy in another
state because of differences in the structure of states' UI programs or
the regional economy. For example, evidence for the service industry may
be inconsistent across states. 23 One study using data for 21 states from
1968 to 1975 found that the service industry tends to receive a net
subsidy, while a more recent study using data for 22 states from 1980 to
1991 found that the service industry paid almost 32 percent more in taxes
than in benefits received by its former workers. 24 There is also mixed
evidence for the mining industry. Although several studies have found that
mining receives an overall subsidy, a study of the Texas UI program found
that this industry had the highest percentage of firms that are
subsidizers. 25

More recent tax data obtained from three of the five states we contacted
largely parallels the findings of earlier studies. 26 (See table 5.) In
two of the three states, as in the previous studies, construction, as well
as agriculture, forestry, and fisheries received subsidies. For example,
in Washington, the taxes paid by construction firms covered approximately
70 percent of

23

These findings for the service industry may also vary, in part, because of
the diversity of subindustries in this category.

24

See: Raymond C. Munts and Ephraim Asher, "Cross-Subsidies among Industries
from 1969 to 1978," in Unemployment Compensation: Studies and Research,
Volume 2, Washington D.C.: U.S. National Commission on Unemployment
Compensation," July 1980, pp. 277-297, and Anderson and Meyer, "The
Unemployment Insurance Payroll Tax and Inter-industry and Interfirm
Subsidies," p. 122.

25

Louise Laurence, "How Large Are the Subsidies Provided by the System of
Financing Unemployment Insurance?" The Quarterly Review of Economics and
Finance, Vol. 33, Fall 1993, p. 242.

26

Data provided by Illinois and Texas contained taxes assessed to employers.
Officials from both states indicated that in excess of 99 percent of taxes
assessed are collected from employers.

charged benefits paid to their former employees. In Illinois, the subsidy
to the construction industry was substantial-from 2001 to 2004, firms in
the construction industry, as a whole, paid more than $1 billion less in
unemployment insurance taxes than the unemployment benefit costs charged
to them. 27 In Texas, the construction industry had the highest ratio of
benefits to taxes, indicating that benefits charged were high relative to
taxes paid compared with other industries for the 2-year period. However,
the construction industry actually paid a subsidy in Texas from 2004 to
2005. 28 During this time all industries in Texas paid more in taxes than
in benefits charged to their former employees. Officials from Texas
indicated this was to repay a trust fund deficit, which the state covered
with a bond issuance in 2003.

27

It should be noted that over this period, taxes paid by all
experience-rated employers in Illinois were about $2.2 billion less than
benefits charged. Hence, the construction industry accounted for about
half of this difference. Data we obtained from Illinois, Texas, and
Washington are reported in base year 2005 dollars.

28

Employers in Texas were assessed higher taxes relative to benefits charged
during this time period in order to pay off deficits generated in previous
years. Employers were charged an obligation assessment to cover a bond
issuance in 2003.

  Table 5: Industries Ranked by Benefit-Tax Ratio for Selected States
        Illinois (2001-2004)              Texas               Washington
                                    (2004-2005)               (1999-2004)
  Benefit-              Benefit-                Benefit-               Benefit
  tax      Industry          tax Industry       tax      Industry          tax
  ratio                    ratio                ratio                    ratio
  Highest: Construction     2.48 Construction       0.92 Construction     1.42
           Mining           1.67 Educational        0.89 Manufacturing    1.08
                                 services                              
           Agriculture,     1.62 Utilities          0.75 Agriculture,     1.06
                                                         forestry,     
           forestry,                                     fishing, and  
           fishing,                                      hunting       
  and hunting                                            
      Professional,         1.54 Agriculture,       0.74 Information      1.05
                                 forestry,                            
     scientific, and             fishing, and                         
                                 hunting                              
  technical services                                     
         Administrative and 1.51 Administrative     0.74 Professional,    1.02 
                                 and                     scientific,      
        support, and             support, and            and technical    
                                 waste                   services         
            waste                management and                           
       management and            remediation                              
                                 services                                 
  remediation                                            
  services                                               
  Lowest: Management of     0.74 Mining             0.44 Utilities        0.49
  companies and                                          
  enterprises                                            
      Health care and       0.84 Accommodation      0.44 Health care      0.51
                                 and                     and social     
     social assistance           food services           assistance     
                                 Wholesale               Accommodation   
       Accommodation        0.84 trade              0.54 and              0.59
     and food services                                   food services  
        Educational         0.91 Information        0.57 Retail trade     0.62
  services                                               
      Utilities             0.96 Arts,              0.58 Finance and      0.63
                                 entertainment,          insurance       
                                 and recreation          
  Average:                   1.27                   0.66                  0.85

Source: GAO analysis.

Note: The average benefit-tax ratio for each state is based on all major
North American Industry Classification System codes, but does not include
public administration or unclassified employers.

Our more recent tax data also show a similar pattern with regard to those
industries that paid subsidies. 29 In two of the three states from which
we had data (Texas and Washington), as in the studies reviewed, the
finance, insurance, and real estate industry paid more in taxes than in
benefits paid

Data GAO obtained are reported according to the North American Industry
Classification System (NAICS). Dollar figures are reported in base year
2005 dollars. In 2003, the Bureau of Labor Statistics converted from the
U.S. Standard Industrial Classification (SIC) system to NAICS codes.

Page 24 GAO-06-769 Unemployment Insurance

to its former workers. Other industries that paid subsidies in Illinois
and Washington include utilities, health care and social assistance,
management of companies and enterprises, and accommodation and food
services. (See fig 2. for Washington) Although the mining industry is
often found to receive a subsidy, in Texas this industry paid a subsidy of
more than $56 million from 2004 to 2005.

Figure 2: Unemployment Insurance Benefits Charged and Taxes Paid by
Selected Industries in Washington State from 1999 to 2004

The persistence of subsidies to firms in industries such as construction
and agriculture, forestry, and fisheries may be caused by the industries'
susceptibility to seasonal or economic cycles that result in layoffs and
push firms to the maximum tax rate. As one study of UI programs in New
England notes, "firms enjoying the largest subsidies tend to face highly
cyclical or seasonal demand for their products." 30 If this susceptibility
causes firms in industries such as construction or agriculture to
chronically be at the maximum tax rate, the subsidies they receive may not
be recovered by the state. There is at least one anomaly with regard to
this explanation: The retail trade industry is also seasonal in nature
but, according to some studies, pays subsidies. According to one study, a
possible explanation may be that many unemployed workers in this industry
were not eligible for UI benefits. 31 If unemployed workers in the retail
trade industry were only employed for a short time, they may be unable to
receive benefits and their former employer would not be

30

Robert Tannenwald and Christopher O'Leary, "Unemployment Insurance Policy
in New England: Background and Issues," New England Economic Review,
Federal Reserve Bank of Boston, May 1997, pp. 3-22.

31

Tannenwald and O'Leary, "Unemployment Insurance Policy in New England:
Background and Issues," p. 16.

Page 25 GAO-06-769 Unemployment Insurance

charged. Aside from the retail trade industry, firms in industries like
finance, insurance, and real estate may consistently pay more in taxes
than benefits paid, because they tend to have more stable or growing
employment and pay the minimum tax rate.

    Studies Reveal That Subsidy Patterns for Broad Industries Do Not Apply to
    All Firms in an Industry, and New Firms Tend to Pay Subsidies

Using more detailed data, some studies have found cross-subsidization
within industries. While, at the broad level, some industries receive or
pay subsidies, not all subcategories or firms within these industries fit
the pattern of the overall industry. For example, one study found that
within the manufacturing industry, apparel manufacturing receives a
subsidy that is three to four times as great as the benefit-tax ratio of
other manufacturing subgroups. 32 Another study, using data from Texas,
found that, even though the construction industry as a whole receives the
second largest subsidy, the majority of firms within the construction
industry paid more in taxes than benefits received by their former
employees. 33 In that study, approximately 52 percent of construction
firms paid a net subsidy.

Research has also shown that the likelihood an individual firm will
receive a subsidy can vary by the age of the firm. In particular, young
firms that are not yet experience-rated are found to pay more in taxes
than benefits received by their former workers. 34 Typically, firms with
less than 3 years of employment history are assigned a standard tax rate
or the average industry rate. One study, using data from Texas, reports
that the majority of such new firms pay a subsidy, although a few of these
firms receive large subsidies. 35 Among firms less than 5 years old,
approximately 67 percent pay a subsidy, which is the highest rate of all
age groups. Overall, the author found that young firms and old firms tend
to subsidize firms in the 11- to 20-year age group. In addition, our
analysis of recent data from Illinois also indicates that firms that are
not yet experiencerated pay a relatively large subsidy. In Illinois, new
employers paid

32

Joseph M. Becker, S.J., Experience Rating in Unemployment Insurance: An
Experiment in Competitive Socialism, Baltimore, Maryland: The Johns
Hopkins University Press, 1972.

33

Laurence, "How Large Are the Subsidies Provided by the System of Financing
Unemployment Insurance?" pp. 241-242.

34

Using a practice known as SUTA dumping, some employers have created a new
company to improve their experience rating and attain a lower tax rate.
See GAO-03-819T. Despite this practice, new employers, as a whole, pay
subsidies in some states.

35

Louise Laurence, "How Do Firm Characteristics Affect the Subsidies
Provided by the Unemployment Insurance System?" Applied Economics, Vol. 9,
September 1991.


21 percent more in taxes than benefits received by their former workers
from 2001 to 2004, to the amount of more than $84 million.

  Measures to Improve Experience Rating and Reduce Subsidies Must Be Balanced
  against Other Goals

States could take various actions to improve experience rating and reduce
subsidies, but state officials and experts indicated that such changes
should be considered in light of other program goals and considerations.
For example, higher maximum tax rates would better balance tax payments
and benefit charges for employers whose former employees impose high costs
on a state's program. However, according to state officials and experts,
states may also wish to limit the financial liability of firms under the
unemployment insurance system and that for some firms and industries,
higher tax rates might be difficult to bear.

    Increasing Tax Payments of Subsidized Firms Could Reduce Subsidies but
    Increase Financial Strain on Some Businesses and Have Other Undesirable
    Effects

State unemployment insurance programs could improve experience rating and
reduce cross-subsidies by increasing the unemployment insurance taxes paid
by firms that receive subsidies. Among the several ways states could
improve experience rating, some of the key adjustments would be to raise
the maximum tax rate, increase the taxable wage base, or adopt some
combination of these two modifications. 37A 2003 analysis of the
Massachusetts unemployment insurance program indicates that making an
adjustment can have a substantial effect on closing the gap between
benefits charged to and taxes paid by firms that get a subsidy. 38 Using a
simulation analysis, the study found that using a new tax rate schedule
with higher maximum rates reduces ineffective charges from $978.4

37

Labor also cited another innovative option it referred to as a flexible
maximum tax rate. The option would allow a UI program to add a tax
increment beyond the maximum tax rate for employers whose tax payments are
substantially smaller than benefit charges. The goal would be to make each
marginal layoff have some added impact on an employer's rate, but not be
enough to be a complete reimbursement According to Labor, this innovative
concept would provide increased cost allocation and an active incentive to
decrease benefit costs that does not exist with a fixed maximum tax rate.

38

Wayne Vroman, Unemployment Insurance Financing Options in Massachusetts,
The Urban Institute, Washington D.C., December 2003.

million to $801.3 million, an 18 percent decrease. 39 Further, an increase
in the taxable wage base from $10,800 to $18,000 was found to reduce
ineffective charges-that is, benefit charges to active firms that are not
matched in tax revenue from those firms-from $978.4 million to $773.6
million, a 21 percent decrease.

U.S. Department of Labor and state officials, as well as unemployment
insurance experts, have noted that measures to improve experience rating
or reduce cross-subsidies involve trade-offs that states would need to
consider. Several unemployment insurance officials and experts have stated
that full experience rating is not desirable, in part because some firms
could not afford to pay the full costs of benefits their former employees
incur. Commenting on the possibility of higher maximum tax rates, an
official with the Texas Workforce Commission told us that firms that now
pay at the highest tax rates include seasonal employers and employers
whose business activities are being taken over by overseas firms and other
declining companies. He noted that some of these companies are already
under financial stress, and some may well have adjusted their business
models based on the assumption of the maximum tax rate. An increase in the
rate could seriously hurt such firms.

States may also face political resistance to such increases. An Illinois
official said that increases to the maximum tax rate would be portrayed by
affected businesses that are already paying at the maximum tax rate as
creating a bad business climate; some might say that such a change would
drive them out of business or force them to relocate out of the state.
Similarly, in a 1996 report to the President and Congress, the Advisory
Council on Unemployment Compensation noted that some employers- especially
small ones-that need to lay off workers may find that their tax rates
increase so dramatically as a result of those layoffs that that additional
layoffs become necessary. The report further noted that no research has
been conducted on the potential negative effects of experience rating.

Reducing subsidies by raising the maximum tax rates or the taxable wage
base may also conflict with particular policy objectives of a state. For
example, officials of the California Employment Development Department

The tax schedule also included a number of changes in addition to a higher
maximum tax rate. Consequently, some portion of this change may be due to
factors other than the increased maximum tax rate.

Page 28 GAO-06-769 Unemployment Insurance

    Reducing Noncharged Benefits Would Restrict UI Eligibility or Impose
    Additional Costs on Employers

told us that the California unemployment insurance system was
intentionally developed to subsidize two industries important to the
California economy-agriculture and construction. The officials explained
that the California agricultural sector includes not just farms, but
canneries and other associated industries that have large seasonal
fluctuations in demand for labor. When the state's UI system last
underwent major revision in 1985, there was an emerging need to provide
alternative sources of income so that workers would be available from
season to season. Unemployment benefits paid during the off-season became
an essential part of an agricultural worker's annual income. The officials
stated that a pattern of a working season, followed by a period of
subsisting on unemployment benefits, followed by another working season,
has become the norm for many of these workers.

Improving experience rating by increasing the taxable wage base might
involve offsetting effects on experience rating. As noted by the Advisory
Council on Unemployment Compensation, a change in the taxable wage base
most directly affects the degree of experience rating by changing the
distribution of employers' tax rates. 40 Raising the taxable wage base
increases the degree of experience rating for employers at the maximum tax
rate before the increase, and below it afterward. However, if the tax rate
schedule was not adjusted at the same time, raising the taxable wage base
could also reduce experience rating, as it would increase tax payments by
employers who already pay subsidies into the unemployment insurance
system. If the tax rate schedule was modified, some employers might move
to the minimum tax rate, a change that would also limit experience rating.

Reducing Noncharged Benefits Would Restrict UI Eligibility or Impose
Additional Costs on Employers

Noncharged benefits-benefits payments that are not charged to a specific
employer-detract from experience rating because they are shared-that is,
they are borne to some degree by all employers, thus adding to the costs
of employers who had no responsibility for the unemployment. Noncharges
could be reduced either by reducing benefit payments in such cases or by
charging such benefits to the recipient's previous employer or employers.
However, each approach has its drawbacks.

40

Advisory Council on Unemployment Compensation, Unemployment Insurance in
the Unites States: Benefits, Financing, and Coverage, Washington D.C.:
February, 1995.

Page 29 GAO-06-769 Unemployment Insurance

    Other Actions to Improve Experience Rating

Eliminating noncharged benefits would restrict the breadth of coverage of
state unemployment insurance programs. For example, nearly all states
will, in some situations, pay benefits to unemployed workers who
voluntarily quit their last job. Elimination of such benefit payments
would leave such workers uncovered by the unemployment insurance system.
Elimination of benefit payments in some noncharge situations would also
restrict a state's ability to promote broader policy objectives though the
unemployment insurance system. For example, an official of the Illinois
Department of Employment Security told us that during a 2003 debate over
statutory changes to the state's unemployment insurance system, organized
labor advocated for a noncharge in the event that a person became
unemployed because of domestic violence. A person might, for example, be
unable to go to his or her former place of work because the abuser might
stalk that person there. In considering how to reduce noncharges, states
are faced with the choice of paying these noncharges or denying benefits
to individuals in such a situation.

On the other hand, charging many noncharges to employers could be seen as
contrary to the experience-rating principle, because, in theory, the
employer was not responsible for the unemployment. Further, state
officials told us that such an action would likely be strongly resisted by
employers. For example, in describing the domestic violence noncharge
mentioned above, an Illinois official said that employers concurred with
the change, but on the condition that individual employers should not be
charged because responsibility for the unemployment would not be theirs.

Other Actions to Improve Experience Rating

States could take various other measures to improve experience rating and
reduce cross-subsidies. For example, they could improve experience rating
by lowering or eliminating minimum tax rates. This would improve
experience rating for firms that impose little to no cost on the trust
fund. However, a very low minimum tax rate-especially a zero tax
rate-could also have drawbacks. For example officials of the Michigan
Unemployment Insurance Agency noted that the tax rate in their state could
be too low, given that shared costs need to be recovered, and that the
current minimum rate may not be sufficient to ensure that firms at the
minimum rate pay their share. Others have noted that a zero tax rate would
not be consistent with the notion of social insurance, which requires that
an entity receiving coverage pay some premium, even if the entity imposes
no costs on the system.

States could also make other adjustments to improve experience rating,
such as taking into account the time value of money or, in the case of the

  Concluding Observations

reserve ratio state, eliminating the practice of writing off negative
balances. Such actions would better ensure that a firm's experience rating
reflects the full costs it has imposed on the UI system. However, such
actions might have little effect on the actual tax payments of firms that
are at the maximum tax rate and receive subsidies year after year.
Further, California officials told us that the practice of writing off
negative balances prevented negative balance employers from falling into
too deep a deficit position. Without such write-offs, the employer would
have no incentive to improve its experience rating by reducing its number
of layoffs.

Concluding Observations

Cross-subsidies in state unemployment insurance systems are a longstanding
part of the system, and the subsidies occur because unemployment insurance
taxation systems are not fully experience-rated-a fully experience-rated
system would ensure that, over time, the costs that an employer imposed on
the unemployment insurance programs were equal to the taxes it paid. As
with other insurance systems, such as automobile insurance, many of the
potential beneficiaries may never receive benefits, understanding that the
premiums paid protect them should the need for benefits arise. Several
aspects of state unemployment insurance systems cause this shortfall from
full experience rating, and states could improve experience rating and
reduce these cross-subsidies by adjusting these aspects.

In considering measures to increase the experience rating of state UI
systems, it is important to note that stabilizing employment through
experience rating is one of several goals of unemployment insurance. The
program was also established to provide temporary, partial wage
replacement for unemployed workers, and to stabilize the economy though
maintenance of consumer purchasing power in time of high unemployment.
Further, federal law and regulations provide very limited guidance
regarding the degree of experience rating or the acceptable size of a
cross-subsidy. Instead, they have left it to the states to design
financing systems that are experience-rated to one degree or another.

States could nonetheless increase experience rating and reduce subsidies,
but they have chosen to balance these considerations against other policy
goals. For example, all states have chosen to limit the financial
liability of employers by establishing a maximum tax rate. It is possible
that the subsidies arising from these policies provide benefits that
extend beyond those directly subsidized. Subsidized industries may be
large employers in a given state or represent core parts of a state's
economy. Subsidies may have other intended effects. For example, they may
encourage employers
                    
to continue contributing to the system, even if they provide only a part
of the contribution they should make. Under the current framework, state
policy makers decide the appropriate balance between experience rating and
the other policy objectives of a state's unemployment insurance program.

Agency Comments and Our Evaluation

We provided a draft of this report to the Department of Labor for its
review. Overall, Labor agreed with our findings, and noted that the report
provided a succinct analysis of the issues we sought to address. Labor
also cautioned that an emphasis on "full experience rating" may obscure
the fact that employers in the United States pay an amount much closer to
the benefits assigned to them than do employers in any other country. We
concur with this view, and it is in fact consistent with our conclusions.
We also modified the report slightly to reflect these issues more
explicitly. Labor's formal comments are reproduced in appendix III.

Labor also provided technical comments on the draft report, which we have
incorporated where appropriate.

As arranged with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 7 days from
the date of this letter. At that time, we will send copies to interested
congressional committees and members, and the Secretary of Labor. We will
also make copies available to others upon request. In addition, our report
will be available at no charge on GAO's Web site at http://www.gao.gov.

Contact points for our Office of Congressional Relations and Office of
Public Affairs may be found on the last page of this report. GAO staff
that made major contributions to this report are listed in appendix IV.

Sincerely yours,

Sigurd R. Nilsen, Director Education, Workforce,

and Income Security Issues

Appendix I: Objectives, Scope, and Methodology

Our objectives were to address the following questions:

1. How have states ensured that individual employers pay unemployment
       insurance taxes based on their experience with unemployment, and what
       aspects of state unemployment insurance systems limit such experience
       rating?
2. To what extent do employers pay unemployment insurance taxes
       commensurate with unemployment benefits paid to their former
       employees, and how does this vary by industry?
3. What steps could states take if they wished to ensure that the taxes
       paid by individual firms more closely matched the benefits paid to the
       former employees of each firm?

To answer the first and third questions, we reviewed pertinent literature
and interviewed Department of Labor officials, and officials of national
organizations representing the perspectives of business, labor, and state
unemployment insurance agencies, as well as nationally recognized experts
on unemployment insurance. We also conducted in-depth interviews with
representatives of unemployment insurance agencies in 5 states-California,
Illinois, Michigan, Texas, and Washington. We selected these states
because they are relatively populous and geographically dispersed, and
because they take different approaches to ensuring experience rating. We
discussed each state's approach to financing unemployment insurance
benefits, and the implications that various aspects of these systems had
for experience rating and the existence of cross-subsidies. We also
reviewed pertinent documents describing the unemployment insurance
financing systems in each of these 5 states. In addition, we obtained and
analyzed the Department of Labor's experience-rating index, an annual
measure of experience rating in the state and territorial unemployment
insurance programs.

To answer the second question, we identified and reviewed 10 studies
published between 1972 and 2000 that measured how closely taxes paid by
firms and industries matched the benefit costs they imposed. These studies
used a variety of techniques to measure whether some categories of
employers consistently pay more or less in taxes than benefits paid to
their former workers. Two GAO economists reviewed these studies and
determined that they were sufficiently reliable to use in this report. We
confirmed with the U.S. Department of Labor and national experts on
unemployment insurance that these 10 studies constituted the definitive
work done to date on this subject. To supplement these studies, we asked
the 5 states that we contacted to provide data on tax and benefits
payments by industry type according the North American Industry
Classification System (NAICS). Three of the 5 selected states-Illinois,
Texas, and Washington-provided such data for all or some of the years from
1999 to 2004. We interviewed officials knowledgeable about these data and
determined that the data were sufficiently reliable to include in this
report. Using these data, we developed updated comparisons of the balance
between taxes paid and benefits received for industry groups. 1

Illinois and Texas provided data on taxes due rather than taxes paid.
However, state officials told us there should be little difference between
the two figures.

Appendix II: Example of a State's Unemployment Insurance Tax Schedules

Table 6: California Unemployment Insurance Tax Schedules
Reserve ratio               Contribution rate schedules stated as a
                               percentage
Less Exceeds  -0.20  5.4 AA 5.4 A  5.4 B  5.4 C  5.4 D  5.4 E  5.4 F  6.2  
or equals     Less                                                    *F+  
                 than                                                    
-0.20         -0.18     5.2  5.3    5.4    5.4    5.4    5.4    5.4    6.2 
-0.18         -0.16     5.1  5.2    5.4    5.4    5.4    5.4    5.4    6.2 
-0.16         -0.14     5.0  5.1    5.3    5.4    5.4    5.4    5.4    6.2 
-0.14         -0.12     4.9  5.0    5.3    5.4    5.4    5.4    5.4    6.2 
-0.12         -0.11     4.8  4.9    5.2    5.4    5.4    5.4    5.4    6.2 
-0.11         -0.10     4.7  4.8    5.1    5.3    5.4    5.4    5.4    6.2 
-0.10         -0.09     4.6  4.7    5.1    5.3    5.4    5.4    5.4    6.2 
-0.09         -0.08     4.5  4.6    4.9    5.2    5.4    5.4    5.4    6.2 
-0.08         -0.07     4.4  4.5    4.8    5.1    5.3    5.4    5.4    6.2 
-0.07         -0.06     4.3  4.4    4.7    5.0    5.3    5.4    5.4    6.2 
-0.06         -0.05     4.2  4.3    4.6    4.9    5.2    5.4    5.4    6.2 
-0.05         -0.04     4.1  4.2    4.5    4.8    5.1    5.3    5.4    6.2 
-0.04         -0.03     4.0  4.1    4.4    4.7    5.0    5.3    5.4    6.2 
-0.03         -0.02     3.9  4.0    4.3    4.6    4.9    5.2    5.4    6.2 
-0.02         -0.01     3.8  3.9    4.2    4.5    4.8    5.1    5.4    6.2 
-0.01           0.00    3.7  3.8    4.1    4.4    4.7    5.0    5.4    6.2 
0.00            0.01    3.4  3.6    3.9    4.2    4.5    4.8    5.1    5.9 
0.01            0.02    3.2  3.4    3.7    4.0    4.3    4.6    4.9    5.6 
0.02            0.03    3.0  3.2    3.5    3.8    4.1    4.4    4.7    5.4 
0.03            0.04    2.8  3.0    3.3    3.6    3.9    4.2    4.5    5.2 
0.04            0.05    2.6  2.8    3.1    3.4    3.7    4.0    4.3    4.9 
0.05            0.06    2.4  2.6    2.9    3.2    3.5    3.8    4.1    4.7 
0.06            0.07    2.2  2.4    2.7    3.0    3.3    3.6    3.9    4.5 
0.07            0.08    2.0  2.2    2.5    2.8    3.1    3.4    3.7    4.3 
0.08            0.09    1.8  2.0    2.3    2.6    2.9    3.2    3.5    4.0 
0.09            0.10    1.6  1.8    2.1    2.4    2.7    3.0    3.3    3.8 
0.10            0.11    1.4  1.6    1.9    2.2    2.5    2.8    3.1    3.6 
0.11            0.12    1.2  1.4    1.7    2.0    2.3    2.6    2.9    3.3 
0.12            0.13    1.0  1.2    1.5    1.8    2.1    2.4    2.7    3.1 
0.13            0.14    0.8  1.0    1.3    1.6    1.9    2.2    2.5    2.9 
0.14            0.15    0.7  0.9    1.1    1.4    1.7    2.0    2.3    2.6 
0.15            0.16    0.6  0.8    1.0    1.2    1.5    1.8    2.1    2.4 


       Reserve              Contribution rate schedules stated as a
         ratio              percentage
Exceeds or  Less         
equals      than         
                         AA       A    B      C      D      E      F      *F+ 
0.16          0.17   0.5   0.7     0.9    1.1    1.3    1.6    1.9     2.2 
0.17          0.18   0.4   0.6     0.8    1.0    1.2    1.4    1.7     2.0 
0.18          0.19   0.3   0.5     0.7    0.9    1.1    1.3    1.5     1.7 
0.19          0.20   0.2   0.4     0.6    0.8    1.0    1.2    1.4     1.6 
0.20        or more  0.1   0.3     0.5    0.7    0.9    1.1    1.3     1.5 

Source: California Employment Development Department..

California determines which of the eight tax schedules to use based on the
balance in the trust fund as a percentage of gross wages reported by all
employers. This calculation establishes the rate schedule used as outlined
in table 7.

Table 7: Basis for Rate Schedule Used
In percent                  
                                                            Contribution rate
                  Greater than    Equal to or less than             schedules 
                           1.8                                             AA 
                           1.6                         1.8                  A 
                           1.4                         1.6                  B 
                           1.2                         1.4                  C 
                           1.0                         1.2                  D 
        0.8(or equal to)                               1.0                  E 
        0.6(or equal to)                             0.799                  F 
                                           (less than) 0.6                 F+ 

             Source: California Employment Development Department.

Appendix III: Comments from the Department of Labor

Appendix III: Comments from the Department of Labor

 GAO Contact
 
 Sigurd R. Nilsen, Director, (202) 512-7215, [email protected].

  Staff Acknowledgments
 

Patrick di Battista, Assistant Director, and Michael Hartnett, managed
this assignment. Others who made key contributions throughout the
Acknowledgments assignment include Sharon Hermes and Dan Meyer. Dan
Schwimer, Pauline Seretakis, Scott Spicer, and Shana Wallace provided key
support.

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(130522)

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