Unemployment payments could top $140 million this year due to coronavirus

About $140 million could be paid in unemployment benefits in South Dakota this year if the economic downturn continues at the same level seen so far, the state's top labor official said.

The state is projecting that its Unemployment Insurance Trust Fund balance could decrease to $37.4 million by the end of the year from a balance of $129.2 million during the first three months of the year. The state is also projecting that a total of $30 million will be paid into the fund this year, according to Labor and Regulation Secretary Marcia Hultman. 

But those projections could change if the economy improves and residents return to work, she said.

"It's such a moving target. We don't have history that we can correlate this to," Hultman told the Reemployment Assistance Advisory Council on Thursday.

Hultman said her staff has been asked how the economic downturn during the pandemic this year compares to the 2009 recession, but "there is no comparison." The state paid $63.6 million in unemployment benefits in 2009. The state has already paid more than half that amount through May this year.

Advisory Council member Nathan Sanderson, executive director of the South Dakota Retailers Association, called the projections "very sobering." 

"We spent several years building the trust fund up to a point where we thought we were in a pretty good position and then here in three quarters of a year, almost entirely wiping that out," Sanderson said. "It's sobering how fast this fall has taken place."

Unemployment insurance, called Reemployment Assistance in South Dakota, is a federal program, but states operate it and businesses pay taxes into accounts in the trust fund. A state law passed on the Legislature's final day in March exempts businesses from penalties if they don't pay into the trust fund on time during the pandemic and businesses' accounts won't be charged for coronavirus-related unemployment claims. 

South Dakota entered the pandemic with a much higher balance in its trust fund than other states and Hultman said she's thankful for that. Other states are already insolvent in their trust funds because of the onslaught of unemployment claims during the pandemic, Hultman said.

The trust fund had a $25 million balance in 2008, but then that balance dropped to negative $7.7 million in 2009 before increasing to $26.1 million in 2010. It took until 2015 before the state saw unemployment claims return to normal and since then, the trust fund's balance has grown to $136.6 million last year.

The trust fund's balance on March 24 was $128.8 million. Its balance dipped to below $100 million in May and it was $103.4 million on May 31.

The Reemployment Assistance Advisory Council was discussing last fall giving employers a tax cut because the trust fund balance was so high. But on Thursday, council members were hearing about the surcharge that South Dakota employers will pay for at least a year when the unemployment trust fund dips to $11 million.

Hultman said that trigger means the state is in an economic downturn, which is the hardest time for a company to pay more in taxes. 

"It's counter-intuitive, but it's the way the trust fund is balanced," Hultman said.

Businesses have been using an alternative tax table for their payments into the trust fund for the last couple years because the Average High Cost Multiple is above 1.6%. For that alternative tax table to continue, the state's unemployment trust fund will need to have a balance of at least $120 million on June 30 and they aren't projecting that amount at this point, according to Hultman.

The state has paid $38.1 million in weekly unemployment benefits since the start of the COVID-19 pandemic and $90.3 million for the $600 weekly boost residents are receiving in their unemployment checks, according to Hultman. 

The state's trust fund pays for weekly unemployment checks that can range from $28-$414 per week. The federal government is footing the bill for the additional $600 weekly boost, which is slated to end July 31.

Gig workers, independent contractors and self-employed workers have received $2 million in the new Pandemic Unemployment Assistance program. The state has also paid $40,600 in Pandemic Emergency Unemployment Compensation, which is an additional 13 weeks of federal unemployment a person can receive after exhausting their state unemployment benefits.

Those amounts represent "the dollars that have been put back into South Dakota's economy," Hultman said.

The state has waived the first week waiting period that is typically unpaid. The federal government is funding the unemployment checks residents are receiving for that first week, she said. The work search requirement to receive unemployment benefits has been suspended due to the pandemic, although that rule may be reinstated in the coming months depending on the economy and employers' needs, according to Hultman.

Sioux Falls unemployment jumps

Sioux Falls and Rapid City's unemployment rates quadrupled in April. 

The April unemployment rate for the Sioux Falls Metropolitan Statistical Area, which includes Minnehaha, Lincoln, Turner and McCook counties, was 10.8%, an increase from 2.8% in March, according to the South Dakota Department of Labor and Regulation. Unemployed residents in the Sioux Falls area increased from 4,400 in March to 16,800 in April while the number of employed residents decreased from 150,700 to 138,800. 

The April unemployment rate for the Rapid City Metropolitan Statistical Area, which includes Meade and Pennington counties, was 13.7%, an increase from 3.4% in March, according to the state labor department. Unemployed residents in the Rapid City area increased from 2,600 in March to 10,500 in April, and employed residents decreased from 73,500 to 66,000 in April.

South Dakota's April unemployment rate was 10.2% and the national unemployment rate for April was 14.7%. Hultman noted on Thursday that South Dakota's unemployment rate is a record high for the state.

The national unemployment rate for May is expected to be released on Friday. The unemployment rate is based on employment during the week of the 12th of each month.

New unemployment claims

There were a total of 1,435 initial weekly unemployment claims filed with the South Dakota Department of Labor and Regulation during the week of May 24-30, the department announced on Thursday. 

That's a decrease from 3,471 initial weekly claims during the week of May 17-23, according to the department. The state has received more than 51,000 initial claims for unemployment benefits since mid-March. Less than 5% of the claims filed still need to be processed, she said.

However, 22,454 residents had continued unemployment claims after their first initial week during the week of May 10, which represents the number of workers who have been unemployed for more than one week, according to the department.

Last week, South Dakota paid $3.9 million in state unemployment benefits and $12 million in Federal Pandemic Unemployment Compensation, according to the state labor department. The state paid last week $525,000 in Pandemic Unemployment Assistance benefits and $19,000 in Pandemic Emergency Unemployment Compensation, according to the department.

The state has averaged 5,000 initially unemployment claims per week since mid-March while the average for the same time period last year was 232. The state has had an average of 18,000 continued weekly claims since mid-March while it had an average of 1,742 continued weekly claims during the same time period last year, according to Hultman. Those numbers are only for unemployment insurance benefits and don't include the number of people applying for the new Pandemic Unemployment Assistance program.

A majority of the state's unemployment insurance staff works in at the labor department's Aberdeen office. The labor department's call center for unemployment insurance typically has 11 staff and 92 phone lines and they've added 68 staff and 28 phone lines due to the pandemic, Hultman said.

Effective June 1, teachers, substitute teachers and school workers who work only during the school year were no longer eligible to receive unemployment benefits because they wouldn't typically be working during the summer, according to Labor and Regulation Secretary Marcia Hultman. An exception to that is federal teachers and school workers, such as Bureau of Indian Affairs employees.

Nationwide, there were 1.9 million initial weekly unemployment claims last week, which was a decrease from 2.1 million the week of May 17, according to the U.S. Department of Labor. 

Statewide, job openings have decreased by 5.1% since a peak on March 19. There's been a 13.4% decline in job openings in the Sioux Falls area and a 6.2% decline in job openings in the Rapid City area since a peak in job openings on March 19, the state Bureau of Finance and Management announced on Monday.