Unemployment insurance tax relief bill advances

By Anthony K. Smith
Oregon NFIB,

Oregon lawmakers have less than two months left to complete the work of the 2021 legislative session, and while legislation was moving slowly during the first half of the session, the pace has picked up significantly in recent weeks with many bills passing in their respective chambers of origin. Fortunately for small businesses, HB 3389, the Unemployment Insurance (UI) Tax Relief bill, was one of them.

The bill will provide $2.4 billion in UI tax relief to Oregon employers over the next decade by proposing short- and long-term solutions to what would otherwise be an automatic payroll tax increase to replenish the state’s UI trust fund. The bill passed unanimously in the House, and, since then, has been referred to the Senate Committee on Labor and Business where it was first heard on May 11.

UI taxes are complicated, but generally, there are two factors that determine an individual employer’s tax rate. First, is the overall schedule that Oregon finds itself in – there are a total of eight schedules, with Schedule 1 resulting in lower rates and Schedule 8 resulting in higher rates. The schedule formula ensures that the UI trust fund is replenished after benefits have been paid to unemployed Oregonians. Prior to the COVID-19 pandemic, Oregon was in Schedule 2. Starting in 2021, the state entered Schedule 4.

The second factor that determines tax rates is the employer’s individual experience rating. Experience ratings increase when there are more charges against the employer’s account – this happens when employees are laid-off and receive UI benefits. Experience ratings decrease when there are fewer charges against the employer’s account, generally during periods of low turnover.

Normally, the system works, which is why Oregon has the healthiest UI trust fund in the country, even after paying billions in state and federal benefits to unemployed Oregonians during the last 14 months. However, this combination of tax schedule and experience rating for determining tax rates was not designed to consider a long-term public health emergency – and the government-imposed business shutdowns and restrictions that resulted in mass layoffs through no fault of employers.

Last fall, 85% of Oregon employers received bad news from the Oregon Employment Department when they were informed of their tax rates for 2021 – many seeing shocking increases for circumstances completely beyond their control. Lawmakers responded by organizing a bipartisan, bicameral group of legislators that worked closely with the Employment Department to craft legislation with broad stakeholder support.

The product of this work group was HB 3389, which will provide Oregon employers with much needed relief, holding businesses as harmless as possible for pandemic-related layoffs by freezing experience ratings at pre-pandemic levels, while at the same time providing partial deferral and forgiveness for 2021 tax increases to address near-term costs, and keeping Oregon in lower tax schedules over the next decade to address long-term costs.

Critically important, HB 3389 does not jeopardize the future solvency of the UI trust fund. Employers in Oregon have no interest in risking the solvency of the fund, as that would require the state to borrow money from the federal government to pay benefits. Many states have had to do this during periods of economic recession. Their unemployed workers receive the same benefits, but at a much higher cost to employers due to interest owed on borrowed federal dollars.

HB 3389 appears to be on track to pass this year, but nothing is a given when politics get involved. To avoid any political wrangling toward the end of the session, the Oregon Senate should move swiftly to pass this bipartisan legislation as soon as possible.

A better idea to argue about as legislative negotiations ensue is how much (if anything) the Legislature is willing to use from the $2.6 billion in federal American Rescue Plan Act (ARPA) funds to provide enhanced UI tax relief for those employers most severely impacted by the pandemic. The business community made this ask specifically in a letter to state leaders last month, which would be a win-win for everyone: every federal dollar that ends up in the UI trust fund helps keep employer rates affordable and is eventually paid to out-of-work Oregonians in the form of future unemployment benefits.