Don't raise jobless fund tax too fast


POSTED: Tuesday, December 01, 2009

States are required by federal law to build up funds in good times for paying unemployment insurance claims during bad times, but Hawaii and other states were ill prepared for the depth of the current recession. Hawaii's state government should find a way, probably through federal loans, to delay tax increases on businesses to supplement the fund until the state has climbed out of the economic ditch.

Nationally, the number of people claiming unemployment assistance has tripled since the recession began, draining jobless aid funds and prompting half the states to borrow from the federal government. Thirty-three states plan to raise taxes on employers next year to keep the funds in the black, most of them triggered by laws requiring higher taxes to offset the decline in state funds.

In Hawaii, businesses that now pay an average of $90 per employee into the fund will be forced to pay $1,070 for next year—due in April—and $1,520 in 2010 if no changes are made to avert automatic tax adjustments. That undoubtedly would cause employers to reduce wages and lay off employees, and it could devastate many small businesses, which create about 60 percent of new jobs.

Hawaii's unemployment trust fund reached a record $552 million in 2007 but, at current tax rates, is expected to sink to $125 million by the end of this year. At the current rate of $31.7 million in monthly output, the fund would dry up next year if no changes are made.

The state is examining relief such as adjusting coverage, eligibility, benefit levels, wage base and tax-level triggers, according to Darwin Ching, state director of labor and industrial relations. Even then, he says, the average increase in business taxes would be five times the present level.

Hawaii could join other states in borrowing millions from the federal government to lessen the immediate damage. Loans are interest-free the first year but would be 4.76 percent the second year, at which time the state is likely to be more able to pay the interest.

The federal government is paying jobless compensation for about 4 million of the 9 million beneficiaries who had exhausted the 26 weeks typically provided by states and now can receive up to 73 weeks in aid by the federal government. The combined 99 weeks of jobless compensation is the longest on record.

As the nation recovers from the recession, further action will be required at the federal level, perhaps by legislation, to assist states avoiding prolonged fiscal problems. In particular, moves should be made to lengthen the period before states need to pay interest on what amount to emergency loans.