Unemployment fund rates could stay the same for businesses for 5 more years

The amount businesses have to contribute into the state’s unemployment trust fund could stay the same for another five years under legislation being considered by the Indiana General Assembly.

The discussion comes as state lawmakers try to strike a balance between growing the unemployment trust fund, which is used to pay benefits to unemployed Hoosiers, to comply with updated standards from the U.S. Labor Department while at the same time not burdening businesses with higher tax rates.

State Rep. Dan Leonard, R-Huntington, told members of the House Employment, Labor and Pensions Committee on Tuesday morning that state officials previously believed they needed $780 million in the fund.

The formula set up in 2011 put the state on track to raise the amount to $1 billion. At most, the state would have about $1.2 billion under that model. At the end of fiscal year 2019, the state had $856 million in the fund, and Leonard said the state is on track to hit $1 billion this year.

But Leonard said the federal government changed its formula and, under the new guidelines, Indiana needs to increase the fund to about $1.8 billion.

Gov. Eric Holcomb’s administration suggested raising the rates businesses pay by 17% last year, but state lawmakers didn’t have an appetite for the hike and postponed a decision until this year.

Under a House Bill 1111, which Leonard filed earlier this year, businesses would be locked in at the same contribution rate they have been paying since 2011 for another five years.

Leonard said the fund is currently growing by $200 million to $220 million annually, and that growth would be expected to continue under the new system proposed in his bill. If that held, the fund would hit $1.8 billion by 2025.

“I think it’s a great fix for a problem that is coming down the road,” Leonard said. “It softens the blow on our employers but still builds the trust fund.”

In the meantime, if the fund grew faster than expected and hit $1.8 billion sooner, businesses could see lower rates. But if the fund dropped to below $700 million, businesses would be on the hook to pay more.

Leonard warned that if the state doesn’t take action to grow the fund, businesses could be hit with another penalty from the federal government, similar to what happened after Indiana had to borrow billions of dollars from the federal government during the Great Recession because its unemployment fund was not sufficient to cover all the claims.

Mike Ripley, vice president of health care policy and employment law with the Indiana Chamber of Commerce, said he appreciates that lawmakers aren’t trying to raise the contribution rates for businesses but isn’t sure if the proposal is the best solution yet.

“There’s risk in whatever we do,” Ripley said. “We’re just trying to find the sweet spot.”

Andrew Berger, senior vice president of government affairs for the Indiana Manufacturers Association, said his organization supports the bill because it provides stability. But he noted that without it, businesses actually would have seen a decrease in the tax rate starting next year.

“We wouldn’t be able to take advantage of the cut,” Berger said. “But we do think the stability is good.”

The bill passed out of the committee 12-1, with Rep. Robert Morris, R-Fort Wayne, voting against it.

Morris suggested the rates should be lower for businesses.

“Every dollar in these small businesses matters,” Morris said.