With jobless fund under stress, state hikes tax

Faced with jobless benefit claims that are more than double last year, Employment Security Commissioner Tara Reardon used emergency powers her first day on the job and raised taxes on all businesses to shore up a slumping fund that pays weekly jobless benefit checks.

The temporary tax increase would add one half of 1 percent to the tax rate all employers pay on the first $8,000 of salary for each worker.

All employers pay unemployment tax from 0.1 percent to 6.9 percent depending on several factors with each company’s history of using the fund, a key indicator.

The average employer tax rate is 2.2 percent.

For the employer paying the average rate, this tax hike increases the firm’s annual cost per employee 23 percent to $216 from $176.

All businesses made their first quarterly tax payment for 2009 in April.

The increase applies to the last three quarters, starting with a July 1 payment, state officials said.

This move raises an estimated $23 million a year in tax payments, but a 54-page report from Department of Employment Security staff contends this is the first of several steps that need to be taken.

New Hampshire has paid out more in benefits than it has taken in taxes for six of the last eight years, the study concludes.

For the first three months of 2009, the state paid out $66 million in weekly benefits. Through all of 2008 – a period four times longer – the state paid out $118 million, the study continues.

“After years of having one of the most solvent funds in the United States, New Hampshire anticipates having to borrow money from the Federal Unemployment Account no later than March of 2010,” the agency report warns.

Long-term plan

Reardon invoked a little-used state law first adopted in 1931 that gives her authority to raise rates at any time the “fund is in jeopardy.”

Unemployment rose to 6.2 percent in March, a steep increase from a year ago that month when it was at 3.8 percent.

Over that year, the number of people collecting benefits more than doubled to 45,750 from 18,340 in March 2008, state officials said.

The New England Economic Partnership most recently estimated New Hampshire’s jobless rate would peak at 7.4 percent during the third quarter of 2010.

Reardon is meeting with state legislators and working on a long-term plan she will propose as an amendment to a Senate-approved bill pending before the House Labor, Industrial and Rehabilitative Services Committee.

The long-term solution would apply the unemployment tax in the future to more than $8,000 of salary for all workers, according to business and labor leaders involved in the talks with state officials.

The $8,000 level has not been raised since 1994.

At the time, $8,000 represented 31 percent of the average weekly wage according to the state study. Today, it’s 18 percent of the average wage earned in the state.

Among 23 possible options, the staff study report recommends raising the maximum amount taxed in increments from $8,000 this year to $14,000 by the end of 2012.

The same report urges the Legislature and stakeholders to at least consider increasing the tax rate surcharge up to 1 percent for as long as the next two years.

Only seven states have employment taxes based on lower wages, and all of them base theirs on the first $7,000.

New Hampshire, Vermont and six other states base their unemployment taxes on the first $8,000.

The fund currently has a balance of $134 million, not including about $30 million state officials expect to receive through the federal stimulus package.

The unemployment fund balance dipped low enough last fall that Reardon’s predecessor eliminated for 2009 an unemployment tax discount equal to 1 percent off the regular rate.

In spring 2008, former Commissioner Richard Brothers asked for and got the Democratically-led Legislature and Gov. John Lynch to give him the flexibility to keep some discount for employers even if the balance fell below a $225 million level at which it should automatically expire.

With the recession worsening and the fund balance sliding, however, Brothers decided in October that the 1 percent discount should be done away with for 2009.