Lawmakers ready to add unemployment insurance surchage - East Valley Tribune: Business

Lawmakers ready to add unemployment insurance surchage

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Posted: Friday, January 14, 2011 5:00 pm | Updated: 2:16 pm, Tue Jan 18, 2011.

State lawmakers are poised to force all Arizona employers to pay more in unemployment insurance, at least temporarily.

Legislation awaiting action would add a surcharge of up to $28 a year, on top of what they already have to pay for coverage. That would double, to $56, in 2012.

But Marc Osborne, a lobbyist for the Arizona Chamber of Commerce and Industry, said he doesn’t expect members of his organization to squawk. He said most of them understand that the alternative would be worse — a lot worse.

The problem, quite simply, is the fund that finances state jobless benefits is broke. In fact, it’s worse than that.

Fueled by a tax on the first $7,000 of each worker’s salary, the fund at one time had more than $1 billion.

The fund always has been cyclical. When times are bad, the balance goes down. When times are good, the assessments replenish it for the next economic downturn.

But the recession has been both longer and deeper than anticipated.

When the cash ran out last year, the state started borrowing money from the federal government. Right now the debt is $246.9 million.

Last year the money came without interest, a provision of the federal stimulus program. But that has expired and the state now is accumulating interest at a variable rate which is running at 4 percent.

The real big problem, though, is what happens in 2013 if the state is still in debt.

“The feds come in and become the payday loan industry of unemployment,’’ Osborne explained.

“They’ll take the money,’’ he continued. “But they’ll take it quick and fast. And you’ll have a huge spike in 2013 if our fund balance doesn’t get healthy.’’

Osborne said the surcharges are a better alternative, at least in part because they provide predictability.

“We can go to our employer community and say, ‘It’s going to hurt, but you should not expect another surprise increase,’ ‘’ he said. “That’s one of the messages that we got from our members: A little bit of tax certainty would be really nice.’’

The current law bases each company’s premiums on how often its workers are laid off and collect benefits.

For the best employers, the rate is 0.02 percent of the first $7,000 of salary. That computes out to just $1.40 a year.

At the other extreme the rate can go as high as 5.86 percent, or more than $410 a year.

The Department of Economic Security, which administers the fund, reports the average premium at $156.80.

The agency actually tried to get lawmakers to impose a $42-a-year surcharge beginning last year. That failed after some businesses balked.

Rep. Bob Robson, R-Chandler, the prime sponsor of this year’s version, said this should prove more acceptable. Part of it, he said, is the fiscal reality is sinking in.

“They know it’s a bill that has to be paid,’’ he said. And Robson said that phasing in the surcharge has helped gather support.

Robson said if everything goes according to plan, the two years of surcharges should raise enough to pay off the loan and any accumulated interest by 2013. But he acknowledged a lot of that is based on what condition the economy is in next year.

To that end, HB 2025 has an escape clause of sorts: It allows DES to increase the surcharge by another 0.2 percent in 2012 — $14 a year — if it looks like the loan won’t be paid off by the end of that year.

“The name of the game is solvency,’’ Robson said. “Get it over with and the system is solvent once again in case another shock wave comes through.’’

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