Jobless benefits, tax hikes in legislators’ sights

Higher taxes, tighter regulation and more government spending. Not exactly the words you would expect from a fiscal conservative appointed by former Gov. Craig Benson.

But all of the above is being proposed by state Department of Employment Security Richard Brothers, who as a lawmaker, said, “I never saw a tax I didn’t hate.”

Brothers said he has always been a stalwart of the conservative movement. A founder of the state’s first charter school, a member of Legislators for Limited Spending, a senior adviser to Benson, he himself would have been skeptical of the very changes he is proposing as commissioner, he said. But he isn’t shy in defending his proposals, saying that they will get people back to work quicker and save businesses more money in the long run.

“I’d spend a dime today to spend a dollar tomorrow anytime,” he said.

Brothers’ proposals, along with similar proposals by the state Department of Labor, would affect almost anyone who pays payroll taxes on behalf of their workers, but they would have a particular effect on the construction industry, aiming both at the status of independent contractors and the way some employers allegedly using the system to subsidize their operations.

“We get it all the way around,” said Gary Abbott, executive vice president of the New Hampshire Association of General Contractors about the proposed changes.

Brothers said that his agency’s proposals are driven by flat federal aid, despite rising costs, and are needed before the savings generated by a $10 million computer system are realized in approximately four years.

And, he argued, the changes are being proposed despite his best efforts to cut his budget by “squeezing every quarter until the eagle screams.”

Unemployment tax hike

As reported in the Dec. 23-Jan. 5 New Hampshire Business Review and on NHBR Daily (“State agency seeks hike in unemployment tax”), Employment Security wants to increase the unemployment tax by taxing a worker’s first $9,000 in earned income rather than the first $8,000. Brothers explained that without the tax hike – roughly amounting to 12.5 percent — the unemployment trust fund will sink below $250 million, which would spark an even more substantial tax hike for most employers.

That’s because the tax rate is determined by both the amount of wages being taxed, the experience rate, and a discount, which depends on the state of the unemployment fund.

New Hampshire employers have been enjoying this discount for years, but the fund is so depleted that it might disappear as early as next quarter, and that is particularly crucial because more than half unemployment taxes are paid in the first quarter

Thus companies, by paying $27.8 million in extra taxes, will avoid paying $41.6 million in extra taxes, according to Employment Security figures.

But companies don’t pay the same taxes. How much tax is paid by an individual company depends on what kind of discount it receives. About 15 percent of New Hampshire employers – many of them construction companies — don’t get a discount, so they don’t avoid any taxes at all by paying the increase.

The Business and Industry Administration of New Hampshire supports the package, said vice president David Juvet. And Rep. Will Infantine, R-Manchester, who is sponsoring the bill, said that he initially opposed the tax increase, but was won over after the department told him about its need for the money.

Infantine stressed that he expected that the increase would only be temporary.

Local offices

Employment Security also wants to double its administrative share of the revenue raised by taxes from a tenth of a percent to a fifth of a percent for the next four years, resulting in another $4.3 million a year. Without this increase, Brothers said, he would have to close four of the state’s 13 unemployment offices, which could mean longer periods of unemployment, draining the trust fund and, again, jeopardizing the discount.

The offices in jeopardy are those in Littleton, Lebanon, Keene and Salem, Brothers said.

Littleton, Keene and Lebanon would be on the chopping block because the offices are all in rented space, and savings could be realized immediately. But Brothers said that he was concerned because that would leave only Conway and Berlin serving the North Country, which has a high rate of unemployment. The move also would leave Grafton County with no unemployment office and would force residents in Cheshire County to travel to Claremont.

Salem might be a fourth office to go because of its proximity to Nashua (34 miles) and Manchester (21 miles) the state’s two largest offices. Brothers said he hasn’t decided, but a fifth office could be closed if necessary.

Other states are closing offices and consolidating services, but Brothers said that New Hampshire “is bucking the trend” by actually moving people from Concord into regional offices.

Such decentralization, Brothers argued, helps prevent fraud and enables people to get back to work three weeks quicker than the national average.

Brothers said that without the extra offices, the state would increase by $18 million the amount it pays out in unemployment benefits in order to save approximately $2 million.

Worker benefits, training

Brothers also is calling for an increase to $427 a week in the maximum amount a worker can collect through unemployment insurance. That’s a 16 percent increase, to be fully implemented in 2007. It would be the first increase in five years, and would only affect workers making more than $41,000 a year.

The agency also wants to spend $1 million, spread over the next four years, to train people who are already working through the community technical college system. The Legislature established the fund in 2002, but it was rarely funded because the unemployment trust fund didn’t reach the required funding level of $275 million for it to be implemented.

Brothers argued that better-trained workers would get back to work faster if they are laid off.

“By upgrading workers’ skills, you make it easier to rehire,” he said. “The best unemployment check is the one you don’t have to write.”

Independent contractors

Brothers also wants to institute a $25-a-day fine for each worker an employer fails to report to the state DES.

Under existing law, employers already are required to report salaried employees. This change would put into place a penalty primarily aimed at those who flagrantly hire independent contractors to escape paying their payroll taxes.

Construction-related firms in particular are worried that some will be penalized because of gray areas, where it is unclear how an employee should be classified. Representative Infantine, for instance, recently completed a study that found there were more than 300,000 independent contractors in 2004, receiving some $13 billion, “and I don’t want to paint these people with a broad brush.”

Abbott of the AGC echoed those concerns.

The line between a worker and contractors “is really complicated,” Abbott said. “There is still a lot of room for interpretation. And it could raise an eyebrow that when there is a dispute, (Employment Security) is going to battle it with higher fines. There are some arrangements when it thinks an independent contractor should not be allowed, when they (the independent contractors) are not illegal.”

Brothers said that there are no gray areas, at least when it comes to DES’ definition, but said the bill contains a three-month amnesty period for firms to put an independent contractor on the payroll.

“Our rules are in black and white,” he said. “These are fines for people who repeatedly and blatantly misclassify workers.” For example, he said, “an 18-year-old kid working for a roofing company, picking up shingles and nails, trying to claim he is an independent contractor.”

Targeted tax hikes

A study bill will look into companies with a negative unemployment trust balance, meaning they pay less in payroll taxes then their employees collect in benefits. Brothers said the committee would consider raising their taxes.

These are usually seasonal companies whose workers collect much of their benefits during the off-season — construction workers during the winter or school bus drivers during vacations.

Employment Security even waived requiring these seasonal workers from looking for employment during the off-season, Brothers said, because employers complained they would come in for interviews without the intention of accepting a job.

But Abbott said that not all construction companies hire people in the spring, and if you raise the tax too heavily, it will hurt New Hampshire companies’ competitive position.

“We already pay a higher premium,” he said, “and it isn’t really our fault. There is nothing you can do about winter.”

Besides, he said, the unemployment program is an insurance system. That means that you spread the risk, and some workers may collect more simply because they need more.

“It was never intended to be a pass-through, self-funded user fee,” he said.

Brothers said he is particularly disturbed by the case of employees for a private school transportation company collecting unemployment during school breaks. There is even an exemption to eliminate the waiting period, “so they get paid Day One. It’s as if the state was supplementing their salary,” he said. The benefits only apply to employees of private firms, not those who work directly for school districts, he said. “If you work for an SAU, you can’t collect unemployment.”

But ending the exemption or raising the taxes on private bus transportation companies would be “terrible,” said Brian Hemenway, northern New England region operations manager for First Student, a national school bus company based in Cincinnati that runs about 1,000 buses in the Granite State. “It would really hurt us. Bus drivers are hard to come by, and being able to collect unemployment is a definite plus for us.”

He said that he needs that benefit to compete with SAUs because public employees make more money. If the payroll tax was raised, he said, “we will charge more to the school district, and who is the school district going to charge? The taxpayers.”

Workers’ comp payments

Meanwhile, the state Department of Labor also is proposing several reforms.

By law, employers must pay for workers’ compensation coverage, but currently fines begin the day the Labor Department inspectors discover that such coverage has lapsed.

“There are employers who are abusing the system,” explained Infantine, who has submitted a bill on the department’s behalf. “They wait until they are caught until they start paying in. Then they let it lapse and wait until DOL catches them again, so they hardly have to pay any fines. Meanwhile the workers go for months without coverage.”

This bill will allow the state to start fining employees from the day the coverage lapsed.

The department also is calling for clarification in the definition of independent contractors and salaried employees – a definition that’s different than that used by Employment Security.

One Labor-backed bill would change the five-point test for an independent contractor to a stricter 11-point test, while the another would require that the rules be posted at work sites.

Although the measures are similar to those sought by Employment Security, there was no attempt to coordinate the reforms, but “we are certainly on the same page,” said Brothers.

Not all of the bills that affect the construction industry are coming from regulators.

Infantine also will be introducing a bill on behalf of the industry that will make it easier for contractors to place a lien against large corporations, like Wal-Mart.

The problem, said Infantine, is that many judges refuse to place liens on a publicly owned company because they believe the law is only there to prevent a debtor from skipping town. Since a publicly owned company is not about to disappear, liens aren’t granted.

“So some of these corporations take the position, ‘See you in court,’” Infantine said.

Infantine’s bill would clarify the lien law. It would also allow judges – in particularly egregious cases – to place a lien that’s larger than the amount owed – again, to prevent large companies from stiffing small contractors, he said.

“Big corporations have been getting away with murder on this for years,” he said. “This is an attempt to make it more fair.”

The Homebuilders and Remodelers Association of New Hampshire will be pushing two bills in the new session, one of which calls for a statewide independent building code.

And it also will be supporting a bill left over from last year that would require towns to have in place a plan to create workplace housing, along with several other bills relating to anti-growth ordinances, said Kendall Buck, the executive director of HBRANH.