The economic fallout of COVID-19 will test the strength of Indiana’s economy and stretch the pockets of Hoosiers, many of whom have experienced layoffs or lost business income during the stay-at-home order.
Elected state and federal leaders have announced sweeping changes and planned relief, especially as economists warn of more layoffs in the face of another recession.
More than 120,000 Hoosiers have filed for unemployment benefits in the past two weeks, many of them food service employees, manufacturers or contractors whose businesses have been shuttered under self-isolation measures.
With his department inundated by calls, Fred Payne the commissioner of the Indiana Department of Workforce Development, asked Hoosiers to check the website’s frequently-asked-questions page before calling with specific questions.
“We will get to every call, but we do have some call delays because of the taxing that’s being put on our system,” Payne said.
The new unemployment numbers come after Indiana reported having its highest number of people employed in January, with just 23,000 unemployment claims for that month and a 3.1% unemployment rate, Payne said.
State leaders have leaned on incoming benefits from the federal government, including $1.25 billion in state aid in a $2 trillion package.
“On the economic front, we’ve got this balance of what is here now to help Hoosiers,” Indiana Gov. Eric Holcomb said. “And we’ve got what’s on its way” from the federal government.
The largest ever U.S. bailout package was approved by the Senate and the House. It includes a combination of loans, payments and benefit expansions, with a $367 billion program for small business loans to keep employees on their payroll.
RAINY DAY FUND
Holcomb and many lawmakers tout the state’s strong reserves, totaling more than $2 billion, as a way to maintain state functions during the expected recession.
State governments across the country took away a key lesson after the economic downturn and recession of 2008: Robust rainy day funds are a must.
Since that time, states have scrimped and saved, with combined state rainy day fund totals reaching a record $113.2 billion in fiscal year 2019, according to Pew Charitable Trusts in a March 18 report.
Pew reports that states could continuously run operations for a median of 27.9 days, versus 17.3 days in the year before the recession.
During the recession, Indiana ranked below the national average of 17.6 days of rainy day funding, with 10.4 days. In 2019, Indiana sits above the national average with 32.2 days, or $1.4 billion.
Neighbors Kentucky and Illinois have less than a week of reserves, two of the lowest rainy day funds in the nation.
But Pew cautions against using rainy day budgets alone to evaluate a state’s fiscal strength, because states have different ways of budgeting and reserving funds.
Its rainy day fund could help Indiana through the pandemic, but the state’s budget will still take a heavy hit, especially as revenues decrease from reduced economic activity. Nearly half of all Indiana state revenue comes from the sales tax, which is expected to take the biggest plunge.
“It’s difficult to put a number on what the potential impact will be,” said Chris Johnston, director of Indiana Office of Management and Budget.
Johnston said reserves would be used to help pay for unexpected expenditures, such as supplying personal protective equipment— masks and gowns, for example— to health care workers.
“This will be a complex undertaking for all states to maneuver,” he said.
UNEMPLOYMENT SYSTEM
Other organizations warn that strong fiscal reserves aren’t the only determinant of recovery from the looming recession and criticize Indiana’s unemployment insurance system.
Unemployment benefits can buoy a family or individual through a time of joblessness, helping them access medical care, pay for groceries and keep utilities running, all of which helps the general economy.
According to the Center on Budget and Policy Planning, less than 20% of jobless Hoosiers accessed those benefits before the pandemic, because of a combination of eligibility rules and work requirements.
The average unemployment benefit is roughly a third of the income of a typical Hoosier unemployment applicant, according to the budget center, and tops out at $390 per week. All potential recipients must apply online, though broadband coverage is unequal across the state.
Before the wave of unemployment applications, Holcomb relaxed certain provisions through an executive order, such as the mandatory one-week waiting period and work search requirement. After receiving unemployment benefits, Hoosiers must file a weekly voucher with their hours worked to keep the benefits.
“That’s what’s coming down the pipe and what we have in place now from a state perspective,” Payne said. “There are other add-ons from our federal partners now. There’s a 13-week extension to the unemployment benefits expiration. Currently, we have 26 weeks.”
Additionally, the federal government will add another $600 per week for unemployment benefits on top of state benefits for four months, Payne explained.
Though gig economy workers, such as Uber drivers, people who are self-employed and those with limited work history usually aren’t eligible for unemployment, the federal relief package specifically addresses those workers and expands unemployment guidelines.
The Department of Workforce Development, which oversees unemployment claims, doesn’t yet have information on what sort of benefits Hoosiers are seeing and who’s impacted the most.
“Because we’re so early into this, we haven’t really processed what the average amount of each claim is,” Payne said, adding that partial work weeks change how the benefit is calculated.
There are no plans to change how the department calculates benefits. The calculation involves averaging weekly income during the last four quarters of employment and dividing that number roughly in half.
