Hawaii’s rate of unemployment tax on local businesses has been on a roller coaster for the past decade because of the disastrous economy. Unsettling as the economic instability might be, state legislators should refrain from overreacting to the present shortfall of fees to the jobless fund and instead, move quickly to halt, or defray, businesses’ scheduled rate increases. Some pay-in to shore up a too-low jobless insurance reserve is prudent, but a wise balance must be struck by early March so as not to hinder economic recovery at just the wrong time.
When the state’s unemployment rate hovered around 3 percent in 2005, the nation’s lowest, the jobless tax rate on businesses was the nation’s highest, resulting in an accumulation of $400 million in the state’s Unemployment Insurance Trust Fund, the source of jobless payments. When the flush fund rose to $552 million in 2007, the insurance tax rate was chopped from a yearly average of $280 to $90 to relieve businesses that had been paying too much into the state’s jobless nest egg. At that time, sharply reducing the rate seemed like a good idea to keep the islands’ economy healthy — but in hindsight, it added to tumult in later recessionary times.
The 2007 law included a provision aimed at raising the jobless insurance tax when the trust fund fell below an adequate level. However, what was intended as a self-protecting formula failed to take into account the severity of the recession that struck the nation three years ago.
Hawaii businesses now pay an average of $667 a year per employee, but that has not been enough to cover payments to workers after receiving their pink slips. Like other states, Hawaii had to borrow from the federal government to pay unemployment claims. The state’s reserve now totals about $5 million; officials say an adequate reserve by year’s end would be about $370 million.
For legislators, it’s a dilemma: Allowing the rate increases to kick in as scheduled would almost certainly hamper attempts at economic growth, but if they do nothing, the formula would require businesses to pay an additional $180 to $650 for each employee. Even at that, the reserve would total about $183 million at year’s end, less than half of what the state Department of Labor considers adequate, according to federal guidelines. Labor analysts say the state might have to borrow again to fully cover jobless claims.
"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," Jim Tollefson, president of the Chamber of Commerce of Hawaii, told the Star-Advertiser’s Derrick DePledge. "We’re really hoping that we can find a way to reduce that to a more workable amount."
The prudent way, and one that legislators seem to support, could be to keep the tax rate at its current level for at least a year. At the very least, they should minimize any rate increase. That should have the effect of helping businesses recover — then it would be up to employers to maintain or actually increase their work forces, thus reducing the need to dip into the state’s jobless fund in the first place.
