This is an archived article that was published on sltrib.com in 2011, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
State lawmakers are exploring a cut to Utah's top unemployment-insurance premiums after a huge spike this year in the number of employers paying the maximum rate.
Premiums shot up in 2011 as part of Utah's automatic formula for replenishing its Unemployment Trust Fund, which recently edged toward bankruptcy as it paid out a historic number of unemployment claims spawned by the Great Recession.
The state's jobless trust fund has shelled out nearly $545 million to out-of-work Utahns since August 2008, taking its balance from $855 million to less than $310 million, with more declines anticipated. The dramatic drop led state officials to warn last year the reserve could eventually go broke, for only the second time in Utah history.
Despite the drawdown, the state boasts the nation's 10th healthiest unemployment trust fund. Similar cash pools have run dry in 32 other states with the economic downturn, forcing them to borrow a total of $42 billion from the federal government to keep jobless checks going.
State officials — Gov. Gary Herbert among them — resisted attempts to lower employer premiums earlier this year, while the fund's solvency remained uncertain. But cash flow has picked up slightly as of April, with more revenues coming in and modest gains in the state's economy.
Fund managers now believe the unemployment fund will hit a low of $160 million sometime in 2012 or 2013 but will remain solvent.
"That's provided the economy continues to slowly improve," Utah Unemployment Insurance Director Bill Starks told a panel of state lawmakers last week.
An initiative is under way on Capitol Hill to provide relief for thousands of businesses pushed into the state's highest jobless-insurance bracket, which requires them to pay as much as $2,688 per employee each year into state coffers. A legislative committee voted midweek to draft a bill slashing the top premium rate from 9 percent to 7 percent, with the hope that lowering those costs will spur job creation.
Utah had the second-highest maximum unemployment insurance premium in the country in 2010, right behind Minnesota. And the number of businesses paying the top rate quadrupled to 1,762 this year, a number that could rise to about 3,000 by next year, according to data compiled by the state Department of Workforce Services.
The tax-rate increases also have a hidden double effect, because they hit employers who have already shed workers due to economic hardship.
Under Utah's complex system of assigning a major portion of the costs of unemployment benefits to employers who laid off those workers, the rate hikes have fallen heaviest on small and midsize construction, administrative support, customer service and manufacturing companies. More than a third of companies paying the top rate havepayrolls of $50,000 a year or less, figures show.
"These are the companies that have already had to lay people off because of the recession," said Dave Davis, president of the Utah Food Industry Association, which represents some of the state's largest employers. "Lowering their rates really does make sense."
The idea also has the endorsement of labor groups.
"Based on our analysis, this will help keep the economy stimulated," said Jim Judd, president of the Utah AFL-CIO. "It's eventually going to generate more employment and more jobs," especially among small startups in the construction sector.
But the tax rate cut would cost the state between $10 million and $12 million a year, based on estimates for 2012. One proposal is to "socialize" that cost by recouping it with a much smaller rise in rates paid by all employers, including those who haven't laid off workers during the recession.
Any review ofsuch tax hikesby the conservative Utah Legislature has the potential of sparking a larger discussion about the state's system of paying out jobless benefits.
"We've raised the rates on our employers in a difficult employment time," said Rep. Brad Wilson, R-Kaysville, at last week's hearing, noting that Utah's average weekly unemployment benefit — $316 — is the nation's 16th highest.
"Is that the right amount in these times?" Wilson asked. "Or are we doing the opposite of stimulating this economy by charging employers more than we should be?"
Unemployment trust fund feels the strain
Historic levels of jobless claims in Utah have strained the state's trust fund for paying benefits to those thrown out of work by the Great Recession. That, in turn, triggered a record increase in unemployment-insurance premiums paid by thousands of employers. Utah's top premium is a little more than 9 percent — the nation's second highest rate.