State steps up unemployment insurance collections

Thanks to the Indiana Department of Workforce Development's increased collection efforts, the state has recouped millions
of dollars in unpaid unemployment insurance taxes since January 2006.

But one in eight Hoosier businesses remains delinquent.

According to DWD, 17,343 Indiana firms owe $66.5 million to the department. Of that sum, $38.7 million is for overdue taxes.
The remainder consists of interest, penalties and special charges. Indiana has 128,000 operating businesses.

Bankrupt companies are responsible for some of the debt. Scofflaws are to blame for most of the rest.

"We're not taking this effort lightly," DWD Commissioner Andrew Penca said. "For those who have chosen
to skirt the system, we've stepped up our efforts. We'll have little if any remorse in going after those who have
balances."

Business leaders support the DWD's harder line. Indiana Chamber of Commerce President Kevin Brinegar said it's important
to keep the tax burden on companies as low as possible. But once enacted, he said, laws should apply equally to all employers.

"If the taxes are on the books, we believe every business should pay what they owe," he said. "If we minimize
the delinquents, we also reduce the chances that those who are paying on time have to pay higher rates to offset in part the
revenues that aren't there."

The U.S. unemployment insurance system was created during the Great Depression. Indiana formed its affiliated program in
1938 and began collecting taxes from employers. They're used to underwrite living expense payments to the unemployed.
Today, workers who lose their jobs for no fault of their own can claim up to $390 per week for 26 weeks.

In fiscal 2006, the state collected $613.8 million in unemployment insurance taxes. It paid benefits worth $649.2 million–a
$35.4 million deficit.

With the help of Indiana Attorney General Steve Carter, DWD for the last 15 months has been aggressively pursuing litigation
against companies in arrears. It's filed lawsuits in an effort to collect $2.5 million pending from 56 firms. Another
17 cases have been referred to Carter, but suits have not yet been filed.

Efforts by the Attorney General's Office have resulted in $2 million in unemployment insurance settlements since the
campaign began. In total, Penca said, DWD's campaign attracted $5 million in extra collections last year. This year, he
expects to recoup up to an extra $8 million.

"We're starting to turn the corner and reduce the balance," he said. "It didn't take overnight to
get to $66 million, and it won't be overnight when we reduce that debt to an amount that's acceptable and reasonable."

Tougher tactics

Penca said DWD inherited most of the outstanding balance. Before Gov. Mitch Daniels was elected in 2004, he said, DWD often
let firms with unpaid unemployment insurance taxes languish for years, sometimes decades. Under its new management, the agency
has been more carefully tracking delinquents.

Some companies simply have cash-flow problems and agree to repay what they owe over time. But others deliberately attempt
to avoid their taxes, Penca said, folding one company only to re-form under another business name.

The state expects a number of insolvent firms to declare bankruptcy every year, thus it must write off an average $10 million
of its unpaid unemployment insurance debt annually. But each year, still more firms fall behind in their payments, so the
outstanding balance never disappears.

Records show DWD is suing six firms that it says owe more than $100,000 apiece (see graphic). Muncie-based Triangle Concrete
Contractors has the highest debt: $300,685. The firm, which is being sued in Marion Superior Court, did not return calls.

According to the U.S. Department of Labor, which manages the unemployment insurance system with state governments, employer
tax delinquency is a widespread problem. Nationally, firms owe $852 million for unemployment insurance obligations.

U.S. Department of Labor spokeswoman Peggy Abrahamson said Indiana was unable to collect about 2.2 percent of its unemployment
insurance taxes last year. That's well within the national expected range, she said.

It's up to states to decide when to give up on collection efforts and write off bad debt. Even when they do so, however,
the obligation is never forgotten.

"For debts of material amounts, most states will file liens against the real property of debtors. The liens remain in
force indefinitely," she said.

Sometimes, companies are able to get out from behind the eight ball.

State records show Bloomington-based Employment Plus Inc., a temporary staffing firm, was $400,540 in arrears on unemployment
insurance taxes. The company's vice president of finance and administration, Mike Testy, told IBJ his firm found
itself in a cash-flow crunch when it expanded into Kentucky. Profit didn't keep pace with expenses.

The company–which has a full-time staff of 100, plus 2,500 temps–worked with DWD to establish an installment repayment
plan and return to good standing. It made its final payment in November. In exchange, DWD agreed not to charge Employment
Plus the higher, delinquent tax rate in 2007, which would have cost it an extra $1.3 million.

Testy said his company feels "sincere appreciation" for DWD's leniency. The best way to deal with the agency,
he said, is through "open, honest communication, full disclosure and a willingness to meet your obligations, one way
or another."

Gaming the system?

Delinquent payers aren't the only challenge confronting state officials overseeing the unemployment insurance system.
Many employers in seasonal industries like construction or education "game" the system, said David Reingold, an
associate professor of public policy at Indiana University's School of Public and Environmental Affairs in Bloomington.
He said they lay off large portions of their work force during slow months, relying on the unemployment insurance system to
cover employees' living expenses.

As long as the state has enough assets in place, such tactics have no impact on benefits to the unemployed.

But Indiana's Unemployment Insurance Trust Fund's assets have been on the decline, dropping from nearly $1.5 billion
in 2001 to $583.7 million June 30, 2006, the end of the state's last fiscal year. For each of the past six years, Indiana
has paid far more in unemployment insurance benefits than it has collected in taxes from employers.

Penca blames the national economic recession, and says Indiana's job gains in the last two years allowed the trust fund
to level off. He said the balance is now on the rise.

When the unemployment trust fund's balance is high, the state can decrease its tax on businesses. Those taxes start at
about 2.7 percent on the first $7,000 in wages for each employee. Employers that seldom lay off workers get the lowest tax
rates. The top rate, for delinquents, is 5.6 percent.

Penca said it is his goal to help Daniels foster a business-friendly environment by keeping the tax as low as possible. He
pointed out that other states have higher tax rates, or tax more than the first $7,000 in wages. Reducing bad debt, he said,
is one more way to achieve that business-friendly goal.

Reingold said the collections campaign is a good idea, but relying on expectations of a strong economy to grow Indiana's
trust fund balance might not be.

He pointed out that the state would have to borrow money from the federal government and pay it interest if Indiana's
unemployment trust balance ever fell too low. That's what happened in the severe recession of 1981, Brinegar recalled,
the last time Indiana's unemployment insurance trust was "upside down."

Added Reingold: "It's basically not a problem until you have no money on hand. And then it becomes an enormously
challenging situation."