State agency seeks hike in unemployment tax

The state Department of Employment Security wants to raise the unemployment insurance tax by 12.5 percent for the next four years, arguing that if it isn’t raised many employers’ taxes would increase even more.

The department — facing a $6 million shortfall – warns that it might close as many as four of its 13 offices if a bill including the tax hike is not enacted this legislative session (See related story on page 7 in the print edition of New Hampshire Business Review). In addition, the agency argues, without the increase the unemployment fund would probably drop below the $250 million mark in crucial fiscal quarters, triggering an immediate large increase for many companies. It also will tide the department over until it institutes its new software program, with which it hopes to save enough money to roll back the increase.

In the same bill DES would:

• Double the 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. Much of this would be used to implement a new computer system.

• Increase the maximum amount a worker can collect to $427 per week, 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.

• Spend $1 million, spread over the next four years, on a working training fund. 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.

The long overdue spending increases are not a “huge chunk of money” and are not a primary reason for the tax increase, Michael Skelton, the agency’s program specialist, told the NHBR Daily.

“Our federal funding has been stagnant for the last 15 years,” said Skelton. “Due to rising operating costs, we are starting to face a budget crisis.”

Support from BIA

The Business and Industry Administration of New Hampshire supports the package, said Vice President David Juvet.

“They have made a very strong case for administration overhead and for an increase in weekly benefits. The benefit amount is very modest by today’s standards,” Juvet said.

Rep. Will Infantine, R-Manchester, sponsor of the bill, said that he initially opposed the tax increase, but was won over after the department told him it was in dire need of the money.

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

“I will support it, but I’m not happy,” he said. “I will not, however, support any extension four years down the road.”

While the actual taxes will increase for everyone, Employment Security officials stressed that they could rise even more if nothing were done to address the funding situation. 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. 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 of unemployment taxes are paid in the first quarter, explained Lon Seil, general counsel for the agency.

In some cases, Seil said, a tax increase of as little as $2 per worker can prevent tax increases of as much as $40 a worker, he said. On the other hand, some 15 percent of employers don’t get any discount at all, and will face the full 12.5 percent increase.

Infantine said he would like the agency to investigate if it could cut costs further, especially the possibility of closing some offices. The state has more offices currently than required by federal law.

But Seil thought that closing offices might do more harm than good. One of the reason employers do enjoy such discounts is that the state has been particularly efficient in getting laid-off workers back to work – some three weeks ahead of the national average. If the state closed offices, workers might be unemployed for longer periods of time.

“Every week we cut off the average duration saves employers $5 million. We want to make sure that we can do that, and even do more,” he said.