Wednesday, January 20, 2010

Digging out of a hole

Idaho businesses to pay double in unemployment taxes in 2010


By TREVON MILLIARD
Express Staff Writer

Chip Atkinson, an owner of Atkinsonsí Market, looks over tax paperwork for the coming year, when the business will have to write a substantially larger check to cover unemployment taxes. Photo by David N. Seelig

Chip Atkinson didn't have a very merry Christmas.

One December day, he tore open an envelope from the Idaho Department of Labor and was astonished to find that the family business, Atkinsons' Market, would have to pay 114 percent more in unemployment insurance tax for 2010.

"I calculated it and said, 'Wow,'" he said. "We'll be paying $8,000 to $10,000 more than what we paid last year."

During that same December day, business owners across the Wood River Valley and the entire state of Idaho were unfolding the same letter, the tiny inked letters instantly forcing them to rework the year's budget to accommodate the extra cost.

"Last year, things were quiet," Atkinson said. "They will be quiet again."

The 114 percent increase isn't coincidentally being pushed on businesses at a time when many are already standing on the edge because of the unsteady economy.

The same economic problems plaguing businesses have also increased layoffs, bringing Idaho's unemployment levels to an all-time high of 69,000 workers without jobs, reached in December. That equates to 9.2 percent of Idaho workers without jobs, the highest rate since unemployment reached 9.4 percent in late 1982 and early 1983.

Blaine County isn't far behind with 8.9 percent unemployment in December, or 1,200 out of 13,500 workers without jobs.

And with record unemployment percentages comes record amounts of cash shelled out to these same workers, to the tune of $643 million in unemployment benefits in 2009. The previous record of $247 million was set in 2008, but is only 38 percent of the 2009 total.

Of the $643 million in benefits for 2009, about $403 million came from regular benefits paid through the Idaho Trust Fund, which holds unemployment taxes paid by businesses. The other $240 million was paid through federal extended benefits programs.

The state actually tapped out its trust fund in June and then relied on interest-free loans from the federal government. The loans kept building to $108 million by the end of 2009 as idle workers needed to be paid their benefits.

Bob Uhlenkott, chief research officer for the Idaho Department of Labor, said the unemployment insurance tax rate charged to businesses has been doubled to the legal limit in 2010 in an effort to replenish the trust fund.

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And, Uhlenkott said, the tax rate would probably stay that high into 2011 because the department foresees borrowing into another year. In its December unemployment report, the Labor Department said it expects to borrow $80 million in the first four months of 2010.

Even with the cash influx of federal loans and increased tax rates, the state will have to struggle to simultaneously cover the costs of paying laid-off workers and to rebuild its depleted trust fund, until the economy improves. And the Labor Department said it expects the state's unemployment rate to slightly rise in 2010, leveling off in the 8 to 9 percent range in the second half of the year.

"Obviously, the recession has taken a wrench at the trust fund," Uhlenkott said.

But it could be worse for businesses.

The standard tax rate for businesses in 2010 is at its legal maximum of 3.36 percent for each employee who makes at least the $33,300 wage base, meaning the company pays $1,120 per employee.

Uhlenkott said the 3.36 max for the standard rate, a 114 percent increase over the previous rate of 1.566, was put into place by the federal government in 2005.

"A lot of businesses are having a 100 percent increase," he said. "It would be 200 percent if that change hadn't been put into place in 2005."

He said the reason for the cap is that the tax rate would need to be increased during high tides of unemployment in a recession, when businesses are already strapped for cash.

"And it was thought that businesses couldn't survive," he said, adding that the cap also means the maximum tax rate will be in place longer. "We're not going to replenish (the fund) as fast as possible because of the cap. It will take a couple years."

And all businesses will be writing a substantially larger unemployment-tax check in 2010, regardless of whether they've put past employees on unemployment.

"We don't lay off people," Atkinson said. "We do everything possible to minimize that. The system didn't reward us."

All businesses don't pay the same amount per employee, but almost all will see a 114 percent increase in 2010. That's because the tax rate is assessed to every business based on a ratio of the amount paid annually in unemployment taxes compared to the amount of benefits the state pays to workers that that business had laid off. If the company paid less in unemployment taxes than the state had to shell out to workers laid off by the company that same year, then the company's rate will go up the next year.

For example, the most-favorable ratio for businesses has a tax rate of 0.96 percent, or $319 per employee for 2010, and the least-favorable ratio has a tax rate of 6.8 percent, or $2,264 per employee. In the middle is the standard ratio of 3.36 percent. And all rates have jumped up 114 percent, regardless of where a business' ratio falls.

Some businesses, such as Sun Valley Resort, can't avoid a bad ratio simply because it must employ so many seasonal workers. When these workers are laid off at the end of the ski season, they are eligible for unemployment.

Matt Parke, Sun Valley's human resources director, said he hasn't calculated the increase yet.

"That has all of us a little concerned," he said, later adding, "There's nothing we can do about seasonal employment. We have to lay off people when the ski mountain closes."

If the resort were in Oregon or Washington, it wouldn't need to be so concerned. Those states and 22 others aren't borrowing from the federal government to pay unemployed workers.

Uhlenkott said no two states are exactly the same in administering unemployment taxes. He said Washington and Oregon had higher tax rates prior to the recession and built a fund surplus, enabling them to weather the recession. Idaho businesses, on the other hand, enjoyed low rates during the past few years.

Atkinson said he just hopes the family business can weather the added pressure of a hiked tax rate.

"We can suck it up and take it or ... ," he said, and cut himself short.

Trevon Milliard: tmilliard@mtexpress.com




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