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The Honolulu Advertiser
Posted on: Thursday, March 4, 2010

Hawaii lawmakers fast-track bill to ease unemployment tax hike

BY Greg Wiles
Advertiser Staff Writer

A hurried legislative effort to reduce an almost 12-fold increase in unemployment taxes concluded yesterday with a measure passing the state Senate and being sent to Gov. Linda Lingle for consideration.

The Legislature passed a bill that cuts the pending increase by about half. The average annual tax per employee, which was $90 last year, was set to jump to $1,070 in April if no action was taken. The bill sent to Lingle, who favors relief for businesses, would cut the payment this year to $630 per employee.

"I don't think I have ever seen a bill move this quickly through the session," said Tim Lyons, who lobbies on behalf of about 1,100 businesses belonging to the Hawaii Business League. "I give untold amount of credit to them for getting it up to the governor so quickly."

Granting business owners some relief from a scheduled jump in unemployment levies was among the leading priorities of this year's Legislature when lawmakers convened on Jan. 20.

High levels of unemployment and other factors are leading to a depletion of the state's unemployment trust fund, triggering a massive spike in taxes intended to keep the account solvent. The measure passed yesterday does this, while maintaining unemployment benefits paid out to people looking for work.

Government and business community members feared an onerous jump in unemployment taxes to $1,070 per employee per year might kick off an ironic cycle with businesses having to let go workers to afford paying unemployment taxes for the remaining workers. Such an action would also increase the drain on the fund.

"We fast-tracked a bill and got it through," said Rep. Karl Rhoads, chairman of the House Labor and Public Employment Committee and author of the measure. "There is still going to be an increase but it will be substantially lower than it would be otherwise."

Rhoads, D-28th (Pālama, Chinatown, Downtown), said the Legislature was under pressure to get something done and to the governor for signing by March 12. That deadline was set because the state Labor and Industrial Relations Department starts sending first-quarter unemployment tax bills to employers this month.


The measure, HB 2169, modifies a complex formula used to calculate the taxes to grant some temporary relief.

It sets new lower rates for the next two years and envisions the state having to borrow from the federal government to keep the fund in the black. At least half of states are being forced to seek the U.S. government loans as their unemployment funds go broke because of record joblessness.

Hawai'i's monthly unemployment rate has been as high as 7.4 percent in the past year, a level that has not been seen in more than 30 years.

HB 2169 cuts the average bill in about half this year, with the rate increasing to $970 instead of $1,520 next year.

It also envisions having to pay back the federal government for the short-term loan in coming years with special assessments upon employers. That means higher rates in those years than what they might normally pay, but relieves them from higher rates now as the state starts to recover from a recession.

Rhoads said employers are getting $241 million deferred during the two-year period.

Lingle had submitted a bill that called for even greater savings of $497 million over four years with greater borrowing from the U.S. government. That would have resulted in slightly more interest being paid by employers.


On Tuesday Lingle noted the differences between the Legislature's and her administration's proposals and said she thought her bill should be implemented.

"Businesses across the state agree with that and legislators need to recognize that at this time, to keep a half-billion dollars in the economy is critically important," Lingle said. She said she was hoping the Legislature would do that.

But Lingle also indicated she would be open to legislation that cut the big increase in unemployment taxes.

"We have to pass some kind of relief for businesses and a little relief is better than no relief."

A Lingle spokesman said the governor will be reviewing the measure passed by the Senate yesterday.

Lyons said some businesses will no doubt still complain if the measure is signed into law and they receive an unemployment tax bill later this month showing the average bill jumping by about seven times.

"If you were paying $90 a year per employee, now you're going to get a bill for $600," Lyons said.

"It's almost as if the Department of Labor should put a stuffer in there saying 'Sorry about the bill for $600. but it would have been $1,200.' "