Republicans in the House and Senate introduced a bill Thursday that could drastically change the way states distribute unemployment insurance benefits.

The Jobs, Opportunity, Benefits, and Services Act, or JOBS Act, would give states the option to change the way they spend the remaining $31 billion in federal unemployment funds that they have access to this year.

Last December, the Obama administration worked out a deal with Republican congressional leaders to extend federal unemployment benefits through the end of November, along with the Bush-era tax rates for people at all income levels for two years (see House Passes Extension of Bush Tax Cuts and Unemployment Benefits).

Under current law, the remaining $31 billion in federal unemployment funds could only be spent for unemployment benefits stretching up to 99 weeks in many states. Under the JOBS Act, states could also use the money to prevent unemployment tax hikes or for programs designed to get unemployed workers back on the job.

Under the bill there would be no changes in how a state’s share of the $31 billion is spent unless a state affirmatively enacts legislation to do so. However, Democrats charged that the bill would give states the ability to take away guaranteed unemployment benefits from the jobless.

The bill was introduced in the Senate by Orrin Hatch, R-Utah, the ranking member of the Senate Finance Committee, and in the House by Ways and Means Committee Chairman Dave Camp, R-Mich., Human Resources Subcommittee Chairman Geoff Davis, R-Ky., and Human Resources Subcommittee member Rick Berg, R-N.D. They say the bill would curb rate hikes in unemployment taxes for employers.

Republicans noted that since the recession started in 2007, states have paid record amounts of unemployment benefits. To pay for those benefits, state unemployment taxes have already risen by 44 percent in the past two years, they argued, with more tax hikes ahead. They contend that 33 states have borrowed $45 billion in federal funds—forcing them to raise taxes even more to repay those loans.

"Hitting our nation’s job creators with significant tax hikes as a means of replenishing state unemployment programs is bad policy that undermines the ultimate goal—a robust economic recovery,” Hatch said in a statement. “This legislation is a fiscally smart way of empowering states by giving them the flexibility they need to strengthen programs for the unemployed, while promoting a pro-growth environment to spur job creation.”

Democrats reacted angrily to the bill. “This is the opposite of a jobs bill—it is a hatchet job on the unemployment insurance program,” said Sander Levin, D-Mich., the ranking member of the House Ways and Means Committee. “With this legislation, Republicans are proposing to end this year’s guaranteed benefit for the long-term unemployed, just like they’ve proposed ending the guaranteed benefit for Medicare recipients. At stake are extended benefits for more than 4 million unemployed Americans. This legislation takes money out of the pockets of the long-term unemployed and throws it to states, many of which have mismanaged their trust funds. Their timing couldn’t be worse given today’s news that applications for jobless benefits jumped to the highest levels in eight months.”

Under the bill, each state would continue paying the same benefits it is paying today, unless a state legislature voted to use the funds differently. The bill would give states the option to use their share of the $31 billion in remaining temporary federal unemployment funds in several different ways. They could continue paying regular or extended unemployment benefits; prevent unemployment tax hikes; pay interest or principal on federal unemployment loans; or promote job creation and hiring through the use of re-employment services, including wage subsidies.

The bill also includes reforms that would strengthen job search requirements, requiring those most likely to exhaust their unemployment benefits without ever finding a job, such as people without a high school degree, to sign up for further education or training courses  to improve their chances of finding work, and allow states to test strategies to help the unemployed find work.

“The JOBS Act is about giving states the flexibility to spend current funds better, preventing job-destroying tax hikes and helping unemployed individuals find new jobs,” said Camp. “It doesn’t add to the deficit, and simply lets states use current funds more wisely. At the same time, it includes reforms that will make the unemployment benefits system work better in the long run—promoting more job search and education and training needed to help the unemployed get back to work sooner. And it allows states to apply for innovative pro-reemployment waivers of federal UI law, like the waivers that led to successful welfare reforms of the 1990s.”

However, Democrats argued that the bill would allow some states to cut off guaranteed benefits for the unemployed. “This is a surprise assault on the jobless, which encourages the states to terminate assistance to 4 million long term unemployed Americans,” said Lloyd Doggett, D-Texas, the ranking member on the Human Resources Subcommittee. “It takes from the unemployed to give to state governments that failed to manage their budgets or to prepare for recession. Like the rest of the Republican legislative agenda, this mislabeled JOBS Act creates no new jobs. It represents only the latest attempt by Republicans to blame the unemployed for unemployment on the very day that ongoing unemployment claims had their largest weekly increase since last July.”

They noted that the legislation would likely eliminate extended unemployment benefits in many states. If every state took the option of spending those funds for other purposes, over 4 million Americans could lose their extended unemployment benefits. The legislation would allocate the remaining balance now estimated to be spent on temporary, federally funded extended benefits to the states and allow them to use it for a number of purposes, including cutting unemployment insurance taxes on employers and paying off UI loans from the federal government.

The legislation would also permanently allow regular UI funds to be diverted for other purposes, potentially undermining the foundation of the unemployment system which ensures some wage replacement for workers who lose their jobs through no fault of their own, Democrats argued.

The bill would allow states to seek waivers from the Department of Labor to use unemployment insurance funds to pay for something other than UI as long as it relates to employment. This waiver authority could allow a state (if approved by the Labor Department) to provide wage insurance or private accounts to a potential UI recipient, instead of unemployment benefits. Alternatively, a state could use UI funds to pay wage subsidies to employers hiring UI recipients.

The legislation would also impose new training and work search requirements for UI recipients that states already have the flexibility to put in place, Democrats noted, even as funds for such programs are being slashed in Congress. The measure would impose new training and education requirements for UI recipients who are referred to employment-related services by the states.

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