Hawaii businesses poised to receive unemployment insurance relief

With businesses throughout Hawaii poised to see big hikes in the amount they have to pay into the state fund for unemployment insurance, state lawmakers have sent a relief bill to Gov. David Ige that’s expected to significantly ease the burden.

House Bill 1278 caps the amount that businesses will have to pay into the fund to help replenish it.

The measure has strong support from businesses struggling to survive amid the coronavirus pandemic, but it’s not clear how the state, which is facing a $1.4 billion operating budget shortfall, will absorb the costs of the measure. The state, rather than businesses, would be on the hook for covering hundreds of millions of dollars in costs for unemployment insurance claims if the bill is enacted.

State legislators say they expect the governor to sign the measure. But Ige was noncommittal when asked whether he supported the bill and his time frame for making a decision.

The bill will “undergo legal and departmental review,” said Jodi Leong, a spokeswoman for the governor, adding that Ige understands its importance and will expedite its review.

While it’s the state that doles out unemployment benefits for workers who have been furloughed or laid off, employers are the ones who pay into the trust fund through taxes on their employees.

The rate at which they pay into the fund goes up if they have a significant number of claims filed by their workers. Legislators are seeking to waive this “experience rating” for employers. Instead, the majority of employers would see a modest increase in the rates they are charged.

Without the relief, businesses could face exorbitant tax increases, making it even harder to survive amid the devastated economy, said Sherry Menor- McNamara, president and CEO of the Chamber of Commerce Hawaii.

As an example, she said one business was facing an increase from $7,000 a year in unemployment insurance costs to $85,000 a year.

The bill provides added relief for nonprofits that are deemed “reimbursing employers,” meaning they are not part of the unemployment tax system and instead have to pay the full cost of claims. Beginning in 1972, nonprofits were added to the unemployment system and given the option of paying unemployment taxes or opting out, in which case they would have to reimburse the state for the full amount of the claims.

The federal CARES Act has reduced this burden by 50%, but nonprofits are faced with covering the rest.

State lawmakers have worked quickly to move the bill to the governor even though the legislative session doesn’t adjourn until the end of April. The bill’s provisions would be in effect for the next two fiscal years.

Last year, the state borrowed $700 million to cover unemployment insurance claims after the pandemic sent the unemployment rate in Hawaii soaring to 23.6% in April, up from just 2.7% in February. The claims quickly depleted the fund’s $600 million balance. As claims continue to pour in, the state is expected to have to borrow even more as employer contributions to the fund fall short.

Without the bill, it falls to Hawaii’s employers to repay the loan and replenish the state’s trust fund. But state lawmakers say it’s not fair to place all of that burden on businesses that are suffering because of state and county restrictions on businesses and the economic devastation brought on by the pandemic. Saddling businesses with those costs also could dampen economic recovery and cause even more businesses to close.

But it’s not at all clear how the state then plans to absorb those costs as lawmakers hammer out the state’s operating budget. How much aid the federal government will provide the states, and with what restrictions, remains a significant variable.

“I don’t think we can underscore enough that we are waiting to understand what the federal relief bill is going to provide,” said House Majority Leader Della Au Belatti.