The Great Recession has taken its toll on Arizona’s Unemployment Insurance Fund. In fact, the demands placed on the fund have been so great due to high job losses that the fund last year became insolvent.
The UI system is one in which state and federal government, under the Federal Unemployment Tax Act (FUTA), come together to fund the benefits system. The cost is borne by Arizona employers via a .8 percent FUTA tax on the first $7,000 of an employee’s wage.
So in order to be able to continue to pay jobless claims, Arizona in March 2010 began borrowing over $300 million from the U.S. Department of Labor to replenish the fund, joining 31 other states that found themselves in a similar situation.
Nearly $190 million of the loan has been paid back to the federal government, but a hefty balance remains. In the fall of last year, the Department of Economic Security approached the business community to help develop a plan to repay the loan.
The group that came together was a broad representation of employers from across the state. In addition to the Arizona Chamber of Commerce and Industry, it included other chambers of commerce large and small as well as industry-specific trade associations. Working with DES, our coalition created a solution that’s represented in House Bill 2025, sponsored by Rep. Bob Robson of Chandler.
The bill calls for a temporary, two-year assessment, beginning in the fourth quarter of calendar 2011 of .4 percent this year and .6 percent in calendar year 2012 on the first $7,000 of taxable wages per employee.
I want to be clear: this proposed solution is not a tax. It’s a repayment of a loan. If we don’t repay the loan by November 2012, Arizona faces having its current FUTA tax structure overhauled by the federal government, and the costs heaped onto employers could be steep, potentially doubling the current per-employee cost. The Arizona chapter of Americans for Prosperity, one of the capitol’s most vocal taxpayer advocates, cites the potential action Washington could take on Arizona business in its rationale for taking a neutral stance on the bill.
Nobody is thrilled about the idea of an increased assessment on employers, but we face no good choices. Either we attempt to control our own destiny by implementing this temporary action that Arizona employers can plan and budget for, or we wait for a solution to come from Washington.
Based on DES estimates, a temporary short-term assessment like the one in HB 2025 should be sufficient to bring Arizona’s UI fund into solvency without incurring additional federal interest and penalties.
The Chamber thanks Rep. Robson for his leadership on this issue. The assessment is temporary, it’s not a tax, Arizona employers support it and it will prevent us from relying on the whims of the federal government. Passing this bill is the responsible thing to do.