An update on Washington state’s UI system
Come Saturday, September 4, two days before Labor Day, the extra $300 the federal government has been adding on top of state unemployment benefits comes to an end.
Some have faulted the extra money for creating a perverse incentive for many to remain at home instead of report back to work. Indeed, a poll conducted by Morning Consult for the political news site Axios found that (“I receive enough money from unemployment insurance without having to work”) to be one of the top three reasons for remaining on unemployment. NFIB’s last Jobs Report showing a historic high in unfilled job openings would seem to further confirm the perverse incentive.
Seeing what was happening to their economies, governors in 25 states ended the extra unemployment benefit early, but not Washington state’s. Ours decided to let it run to its September 4 end.
Give Washington State Some Credit
Our state was not totally a safe haven for couch potatoes. The Employment Security Department re-instituted the job-search requirement for unemployment benefits beginning July 4 and gave recipients until August 8 to enter details of their job searches.
Most importantly, Washington state managed its unemployment insurance trust fund well enough to avoid having to borrow money from the federal government to shore up the fund’s finances. Not so, 15 to 20 other states that had to bang their tin cups in front of Uncle Sam, including the king of mendicants, California, which is in hock for more than $25.5 billion—and counting. The number of states shrank by a few after some used other federal money to pay off their loans entirely. For California and the others still in arrears, the interest clock on the loans starts ticking Sept. 6 to the tune of 2.27%.
NFIB in the Thick of UI Reforms
Two bills that helped smooth the rougher UI edges were intensely lobbied for by NFIB and its members:
- Senate Bill 5061, temporary unemployment tax structure change – The Legislature approved, and the governor signed, this bill early in the session. It took effect February 8, 2021. SB 5061 reduced the rate of unemployment insurance (UI) tax increases, and spread them out over five years, rather than the normal four years. It did so by suspending the solvency surcharge that is normally triggered when the UI Trust Fund balance is reduced to less than seven months of benefits, and implementing a temporary, five-year, stepped increase in the social tax component at rates lower than had been required by statute. However, the bill did not sufficiently address the experience-rated tax component, which is based on how frequently employers lay off or terminate workers, and the amount of benefits paid to those displaced workers. Nor did this bill backfill or otherwise offset the massive theft of UI funds through fraudulent claims allegedly perpetrated by Nigerian crime rings. NFIB initially opposed the bill due to these shortcomings, and the increase in benefit costs it also contained. We explain the UI tax situation here, and our letter to Senate committee leadership outlining our objections is available here. We are pleased the Legislature did, in fact, act before the session ended to provide additional, targeted relief of experience-rated charges by utilizing federal COVID-relief funds.
- Senate Bill 5478, unemployment insurance relief – The Senate concurred with House amendments to this bill, which will provide $500 million in targeted unemployment insurance tax relief to employers hit hardest by shutdowns and slowdowns ordered in response to the COVID-19 pandemic. More than one-third of the aid is restricted to small businesses with 20 or fewer employees, most in one of 17 specific North American Industrial Classification System (NAICS) sectors. Some 30% of the funds may be available to larger firms, those with 21 to 4,999 employees, whose experience rating jumps at least four rate classes from 2021 to 2022. (That is a substantially lower employee count than the 40,000-worker cap contained in the original Senate bill.) Basically, these funds will be used in 2022 to “buy down” the experience-rated charges that would otherwise apply to qualifying businesses’ UI accounts, providing immediate and longer-term UI tax relief as a result. NFIB supported the bill.