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Colorado Unemployment Fund: Employers facing higher taxes if state doesn't return money

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Posted at 6:19 PM, Feb 11, 2022

DENVER — Jim Noon has seen a lot over his 38 years in the cardboard box business. He’s been through economic booms and recessions. Through it all, he’s managed to grow his business, Centennial Container, to 14 employees.

During the pandemic, Noon’s business was considered essential, meaning he was allowed to stay open and didn’t have to lay off any employees. However, his business did suffer. Orders from some of his biggest clients stopped coming in.

Thousands of workers across the state were laid off at the start of the pandemic. They turned to the state’s Unemployment Insurance Trust Fund to make ends meet.

That fund had more than $1.1 billion in reserves at the time but ran out within six months due to all the needs of workers. The state then borrowed roughly $1 billion from the federal government to continue to pay workers.

The state now has until November to pay that money back to the federal government or employers will face a 6% tax to recuperate the money.

“I was around the last time that we ran the Unemployment Trust Fund below zero,” Noon said. “It was like three or four years of a surcharge to pay that off, and it probably, back then, it tripled what we were paid. So, the fact that we're looking at $2 billion in round numbers, now this scares me to death.”

Employers are already paying higher rates this year. The state is now in the highest tier of insurance rates for companies, and businesses are being required to pay insurance for $17,000 of their employee’s pay instead of previous rates. However, the premium surcharge businesses were supposed to start paying to begin to replenish the state’s unemployment fund was delayed until 2023.

In his annual budget proposal, Governor Jared Polis asked state lawmakers to approve his plan to put $500 million from the general fund and another $100 million from the American Rescue Plan Act into the unemployment fund. The $500 million would be split into premium relief for employers in 2023 and shoring up the trust fund. It would also help pay down some of the federal debt owed.

Republicans, meanwhile, have come up with their own ideas for how to shore up that fund. Senate Bill 66 calls for the state to allocate $1.1 billion to replenish the unemployment fund and another $1 billion to pay back the federal government. The money would come from the state’s general fund, which bill cosponsor Sen. Rob Woodward (R-Loveland) says has plenty of money to help, thanks to a quicker than expected economic recovery.

“If we don't pay it back, it's going to fall on the backs of small business and every employer out there,” said Woodward. “We've got a big hole that we've dug, so we have to dig our way out.”

Woodward, who is a small business owner himself, says the unemployment fund problems were not caused by businesses this time around, but by the government for shutting workplaces down. He doesn’t think it’s fair to put the onus on employers for that money and says an increase in taxes will detract new businesses from coming to the state.

“In my district last week, there were 20 restaurants who closed down. I mean, the pandemic has just been too much for them to survive,” Woodward said.

Democrats like Sen. Julie Gonzales (D-Denver) agree that something needs to be done to help pay down that debt and pay back the federal government.

“The reason that we built an unemployment insurance trust fund in the first place is to be able to say, as a state, 'Hey, look, if you fall on hard times, we've got your back,'” Gonzales said.

However, she says there are a lot of issues the state is facing right now that deserve attention and funding as well.

“It's going to take all of us working together to make sure that we are both addressing the solvency issues, but also addressing the other issues that have been exacerbated by the crisis- access to housing, access to food, access to healthcare,” Gonzales said. “Those are other priorities that we've all got to balance out.”

The Republican bill was supposed to be heard in committee Thursday but was laid over so that Republicans and Democrats could have some time to work on a compromise. Woodward expects the new version to be introduced within the next few weeks.

For now, employers like Noon are bracing for a bigger tax bill, hoping lawmakers will be able to come to a compromise before it hurts their businesses too much.

“I've never been able to get anybody to give me the exact number of how bad it's going to be, but I would assume it's going to be several thousand per employee, times 14 is certainly a hit on the bottom line when we're already having troubles,” he said.