Hawaii unemployment fund on pace to more than double this year

Hawaii’s unemployment insurance fund has nearly doubled this year instead of shrinking as predicted several months ago.

The state Department of Labor and Industrial Relations said on Monday that the fund for paying unemployment benefits grew to $232 million as of Friday, up from about $119 million at the end of last year.

The gain, which included a $27 million addition in the three months ending Oct. 28, means the fund has rebounded to over one-third of its $601 million pre-pandemic balance.

Growth this year in what is formally known as the Unemployment Compensation Trust Fund has been driven by unemployment insurance taxes on employers exceeding benefit payouts as Hawaii’s unemployment rate improved to 3.5% in September from 4.3% at the end of last year.

At the beginning of this year, state lawmakers debated bills proposing to use ordinary Hawaii taxpayer revenue to replenish the fund traditionally supported by businesses due to concern that the fund would shrink. It had been replenished by federal coronavirus relief money the past two years.

Paying an avalanche of unemployment claims triggered by job losses largely in 2020 amid COVID-19 restrictions caused the fund’s balance to plummet from $601 million in 2019 to negative $646 million in 2020.

With federal loans, special federal unemployment coverage and unemployment tax contributions, DLIR paid out nearly $6.5 billion in unemployment benefits as Hawaii’s economy struggled during the worst of the pandemic as the state unemployment rate spiked to 12% in 2020 from 2.4% the year before.

The Legislature appropriated $847 million in federal aid in 2020 and 2021 to repay the federal loans covering unemployment benefit distributions and to help give the fund a $119 million balance at the end of last year.

However, DLIR projected in March that the fund balance would fall 51% by the end of this year, to $58 million.

None of the bills that proposed putting general taxpayer revenue into the fund passed, and the dire prediction of a drop in the fund balance also did not come to pass.

Gov. David Ige expressed thanks to lawmakers for appropriating the federal aid in shoring up the unemployment fund. “With the assistance of the Legislature we have minimized significant impacts to our business community and stewarded the fund to a positive balance,” he said in a statement.

Lawmakers also helped shield businesses from an inordinate increase in unemployment insurance taxes through 2030.

Under unemployment system rules, an automatic spike in the tax contribution rate, pegged in part to a peak one-year unemployment benefit expense in a 10-year period, would have triggered a steep increase in employer contributions. Lawmakers previously had disarmed the trigger last year and this year. In July, the maneuver was extended to keep employer contributions at more normal levels through 2030 under House Bill 2471 that Ige signed into law July 12.

DLIR projected in April that the effect of the bill would still enable the unemployment fund balance to reach $568 million next year, which would be in line with fund levels from 2016 to 2019. Bill Kunstman, a spokesperson for the agency, said on Monday that DLIR does not have an updated projection for future fund growth.

The state Department of Business, Economic Development and Tourism issued its most recent quarterly economic forecast on Aug. 31 and expects Hawaii’s annual unemployment rate to keep improving over the next three years despite concerns about a recession.

DBEDT projects that the rate this year will be 3.8%, down from 5.7% last year, then fall to 3.6% next year followed by further declines to 3.2% in 2024 and 2.9% in 2025.

The economic report noted that the 649,550 workers on a business payroll or self-employed in Hawaii in July was the highest since March 2020 and represents a 97.3% recovery compared with July 2019 before COVID-19 emerged.

DBEDT also said that initial unemployment claims since March have been stable at 1,218 per week, similar to the same period in 2019 when the weekly average was 1,202.