SUBJECT: UNEMPLOYMENT, Temporary Redefinition of “Adequate Reserve Fund”
BILL NUMBER: SB 3128 SD2
INTRODUCED BY: Senate Committee on Ways and Means
EXECUTIVE SUMMARY: Amends the definition of Adequate Reserve Fund for calendar years 2023 through 2030 to exclude the Benefit Cost Rate from June 2020 through August 2021.
We see this an attempt to stabilize unemployment rates for the years 2023 through 2030 without resorting to artificially setting the rate schedule by statute.
SYNOPSIS: Amends section 383-63, HRS, to provide that effective for the calendar years 2023 through 2030, “adequate reserve fund means an amount that is equal to the amount derived by multiplying the benefit cost rate that is the highest during the ten-year period ending on November 30 of each year by the total remuneration paid by all employers, with respect to all employment for which contributions are payable during the last four calendar quarters ending on June 30 of the same year, as reported on contribution reports filed on or before October 31 of the same year, but shall not include the benefit cost rate from June 2020 through August 2021.
EFFECTIVE DATE: July 1, 2050.
STAFF COMMENTS: This is an Administration measure submitted by the department of labor and industrial relations and identified as LBR-04 (22).
State unemployment insurance (SUI) is largely funded by employers. Most employers are charged tax that depends on two things: the overall health of the fund into which SUI tax is collected, and the claims history of the employer. So, an employer with a long history of chargeable claims, for example, will pay more than others. Also, if there is lots of money built up in the fund then the tax rate goes down for everyone.
The health of the fund determines the proper tax rate schedule. The schedules are named after a letter of the alphabet, with A the least costly schedule and H the most expensive. The fund health is measured at the end of the year, and that measurement is used to set the rate for the following year. Here is a chart of the SUI rate schedule for the past 20 years:
Source: DLIR Reports compiled by Tax Foundation of Hawaii.
Although the Great Recession of 2008 and related events caused the fund to run out of money and we needed to borrow around $180 million from Uncle Sam, employers were not subjected to the dreaded Schedule H because our lawmakers passed special legislation to control the SUI rates and override the normal formulas for the years 2010 through 2012 (the orange bars in the diagram). That also happened for 2021, where Act 1, SLH 2021, set the rate at Schedule D for 2021 and 2022.
The change requested in this bill is an attempt to stabilize unemployment rates for the years 2023 through 2030 without resorting to artificially setting the rate schedule by statute.