Jobless fund inaction puzzling


POSTED: Sunday, September 20, 2009

Hawaii legislators took two years before agreeing in 2007 to Gov. Linda Lingle's request for a sharp reduction in what employers pay into a fund used for unemployment compensation. They should have realized in this year's session that the fund was on the way to being exhausted because of the severe increase in the jobless rate.

Their inaction is about to result in major increases in employer payments, which is likely to increase unemployment lines. The increases should be kept at a moderate level by being spread over a longer period of time.

The Legislature reduced the rate charged to employers three years ago, when the state was at full employment and the unemployment insurance trust fund had reached a record $552 million. Lingle had asked for the reduction two years earlier, when the jobless rate was only 2.8 percent and the fund had reached $400 million.

“;Instead of having money sit idle in the state coffers,”; the governor reasoned, “;companies could use the savings from the lower unemployment insurance taxes and reinvest it in their employees and their businesses, and in turn further stimulate the economy.”;

The Legislature responded in 2007 by reducing the average amount employers pay into the fund annually from $280 to $90 per employee.

That was then. When legislators convened in January of this year, the national recession had set in and had begun to take its toll in Hawaii. By the middle of their session, the state's jobless rate had risen to more than 7 percent and was projected to worsen for at least the remainder of this year.

Nothing was done to lessen the sour economy's repercussions on the unemployment fund, which has been reduced to $244 million and is expected to fall to $118.5 million by the end of this year. The state will borrow $61 million from the federal government to help keep the fund solvent.

State law will trigger an increase in employer payments into the fund annually to an average of $1,040 to $1,250 per employee—a more than 1,000 percent increase—with quarterly payments at the new levels beginning in April. Annually, payments will range from $450 to $2,040 unless legislators act to reduce them over a longer period.

Rep. Karl Rhoads, chairman of the House Labor and Public Employment Committee, says it was difficult two years ago “;to imagine that we would be burning through unemployment (insurance funds) at this rate.”; He favors more gradual increases in employer payments to continue rescuing laid-off workers, and that seems to be the most feasible way to soften the blow.