The Department of Labor and Workforce Development said Friday that the change will help bolster the state unemployment trust fund, which could lead to a reduction in unemployment taxes paid by businesses.
According to the department’s projections, ending the allowance for dependent children in the budget year beginning July 1 will save the state $40 million per year.
Lawmakers created the child allowance in 2009 in order to qualify for a nearly $142 million federal stimulus grant. Now that that money had been spent, the Republican-controlled Legislature earlier this year passed a bill to end the program. It passed 66-23 in the House and 24-5 in the Senate.
“That benefit was nice while it lasted and while it was being paid for with federal dollars,” said Sen. Jack Johnson, R-Franklin, a main sponsor of the bill to make the benefit changes.
Advocates for low-income families are criticizing the change.
“They’re balancing the trust fund on the backs of these kids,” said Michele Johnson, the executive director of the Tennessee Justice Center. “It will have real consequences for families across the state.”
Facing dwindling funds in the state’s unemployment trust fund in 2010, lawmakers raised the amount of wages subject to the unemployment insurance taxes from the first $7,000 to $9,000, and increased premiums by 0.6 percent. The fund, which was insolvent as recently as March 20010, has a current balance of nearly $800 million.
The law includes provisions for reducing the taxable income to $8,000 if the fund reaches $900 million, and back to $7,000 if it reaches $1 billion. The premium hike could already be eligible to be undone because the fund has more than $650 million in it.
Sen. Johnson said that while he’s sympathetic to the plight of unemployed parents, he argued that reducing the amount owed by business owners will have a beneficial effect.
“And we want to leave as much money in their hands as we can so they can create more jobs, which will reduce the unemployment rate and get these people off of unemployment compensation,” he said.
Conversely, allowing the fund to be drawn down hurt the state’s jobs picture, Johnson said.
“If we continue to make those payments for dependent children, it is going to potentially make our unemployment trust fund insolvent,” he said. “Which means we’re going to have to go and raise premium payments for employers ... putting an unfair burden on people who were creating jobs in the state.”
Haslam spokesman David Smith said the Republican governor deferred to the sponsors and the Department of Labor to work on the bill.
“The governor was comfortable with the final language,” Smith said in an email. “The department continues to work with Tennesseans to connect them with new opportunities.”