Lawmakers try to halt rise in business costs

Wary of undermining economic recovery, state House lawmakers want to forestall a scheduled increase this year in the unemployment insurance tax rate that would force businesses to pay $180 to $650 more for every employee.

Lawmakers worry that the rate increase — intended to help build a reserve to cover unemployment insurance claims — may be too much of a burden on businesses and could prompt layoffs that might interrupt a fragile recovery.

"We feel like it will be helpful to maintain or to increase the economic momentum that we have, because it comes right off of businesses’ bottom line," said state Rep. Karl Rhoads (D, Chinatown-Downtown), chairman of the House Labor and Public Employment Committee.

The Legislature and Gov. Neil Abercrombie would have to take action by early March to shield businesses. Two years ago, lawmakers and Gov. Linda Lingle moved quickly to reduce the impact of a massive rate increase by about half. In 2007, before the recession hit, lawmakers and Lingle had considered the unemployment reserve so strong that they gave businesses significant tax relief that brought the average per-employee cost down to about $90.

Businesses now pay an average $667 per employee, according to labor analysts.

Jim Tollefson, president of the Chamber of Commerce of Hawaii, said averting the rate increase is the chamber’s top priority this session.

"As businesses now are really trying to pull themselves out of the recessionary times that we’ve been through, it’s coming at the wrong time," he said. "We’re really hoping that we can find a way to reduce that to a more workable amount."

Tollefson and others said it was difficult to foresee the extent of the recession and the fallout on unemployment. "I don’t think anybody anticipated the Great Recession when we looked at this the last time." he said.

The state’s unemployment insurance tax system is set up to be self-correcting. A reserve is built when the economy is surging, to help cover higher unemployment claims when the economy is poor. Automatic rate increases on businesses are intended to help maintain the reserve.

The state’s reserve was more than $550 million in 2007 when businesses received tax relief. But because of the rate adjustments by the state and the rise in unemployment during the recession, the reserve ran dry in 2010. The state, like many others, had to borrow from the federal government to pay unemployment claims. The reserve now stands at about $5 million.

The state Department of Labor and Industrial Relations would consider an adequate reserve under federal guidelines to be about $370 million at the end of this year, but it is projected to be about $183 million if the rate increase takes place as scheduled. If lawmakers block the rate increase, the reserve would be about $74 million.

Hawaii’s unemployment rate is 6.5 percent. Labor analysts have told lawmakers that the state might have to borrow again to cover unemployment claims.

"We look forward to working with the Legislature and supporting the business community. However, there are a few concerns we have with the proposed legislation," Dwight Takamine, director of the state Department of Labor and Industrial Relations, said in an email. "The balance in the unemployment trust fund today is less than 1% of what the law defines as an adequate reserve, and the proposal may have the unintended consequence of increasing the overall financial costs for the business community over the next four year period."

House lawmakers want to keep the existing unemployment insurance tax rate in place for another year, although an option would be to scale back the scheduled rate increase, which would give businesses a break while also growing the reserve.

"We think it helps businesses to continue the economic recovery and to provide some stability for them and their employees," said state House Majority Leader Pono Chong (D, Maunawili-Kaneohe).