Like most local businesses, The Pizza Press had to scramble, adjust and improvise to stay afloat in the COVID-19 pandemic. The Pearl City establishment drastically reduced the work hours for its 25 employees, relying on a “skeletal crew” to operate.
“We’re in survival mode to be able to pay our bills, pay our vendors and keep the lights on,” said co-owner Sarah Nguyen. “Every day we’re looking at our numbers. We’re looking at opportunities — what’s working, what’s not working.”
Typically, the business pays around $500 a year per employee in unemployment insurance tax, Nguyen said. Those funds help keep the state’s UI trust fund solvent to cover unemployment claims.
But COVID-19 decimated Hawaii’s economy, and the $600 million that was in the fund when the pandemic hit evaporated in less than three months as unemployment reached staggering levels as high as 25%.
Under state law, it falls on employers such as Nguyen to pay significantly more in UI tax at the highest possible contribution rate when the trust fund gets depleted as it is now.
That would leave many businesses facing at least triple the cost in UI tax right as they’re trying to recover from the pandemic, officials say.
At that rate, “I don’t know how long we would last,” Nguyen said Tuesday. “We’re barely making it. It’s scary. I’m pretty exhausted. This is the last thing that we need.”
On Wednesday, state lawmakers sent Gov. David Ige a bill that would spare local businesses from having to pay those drastically higher rates under what’s known as “Schedule H” through 2022.
Instead, their rates will bump up slightly, from Schedule C to Schedule D, as recommended by the Department of Labor and Industrial Relations.
The measure, House Bill 1278, also prevents employers from paying more based on how many workers they’ve laid off or shifts they’ve reduced. That’s because the pandemic has caused virtually everyone to cut back on jobs and work, through no fault of their own.
The bill received no opposition from legislators. It passed through both chambers with hardly any changes and didn’t require a conference to hash out differences.
It was largely seen as a no-brainer to help keep Hawaii’s struggling economy afloat — and it needed to get to Ige by early March in order to avoid the severe Schedule H rates from taking effect.
What the bill doesn’t solve, however, is the looming long-term problem of how to pay back the $700 million — and counting — that the state owes the federal government to help cover Hawaii’s mounting UI claims.
By some estimates, including one last May from the DLIR, the state could owe the feds as much as $1.2 billion by the end of 2021 for funds needed to keep up with all of the UI claims.
The state’s struggling businesses could not realistically pay back that debt through UI taxes, local payroll tax experts and some legislators say.
In 2019, at a Schedule C rate, the tax generated $174.5 million. After claims were paid the fund grew by more than $47 million, according to the DLIR.
Barron Guss, president and CEO of the Hawaii-based human resources firm Altres, said the surplus will barely put a dent in the growing debt to cover the claims.
Furthermore, he and others argue, there’s a “moral argument” that the state — not employers — should cover the debt because the state compelled businesses to scale back in order to help control the COVID-19 spread.
“Reality is, the state was responsible,” House Finance Chairwoman Sylvia Luke recently told Civil Beat. “Even if we were to put the employers’ assessment at the highest level (Schedule H), they would not be able to bring in enough money to repay the loan anyway.”
If the federal funds aren’t paid back by November 2022 then they’ll start accruing interest and local businesses would see an increase in their federal payroll tax rates, officials say.
Guss compared the pandemic to a natural disaster. When a disaster hits, the Federal Emergency Management Agency doesn’t require localities to pay back the federal dollars under threat of penalties, he said.
Meanwhile, when the pandemic hit, the state’s UI trust fund was the “only conduit to money” for a population suddenly thrust into financial crisis, Guss added.
“The system was not designed for emergency welfare. It was designed to regulate … the ebbs and flows of an economy,” Guss said in a recent video. “It wasn’t made to provide benefits to essentially 25% of the population at the time.”
Still, it’s not clear how transferring the debt burden from employers to the state might impact essential services, as state leaders already grapple with a significant budget deficit wrought by the pandemic.
Legislators said Wednesday that they’re waiting to see what if any relief on the UI funds borrowed is included in the next major federal COVID-19 relief package before they decide how to address the issue.
The problem isn’t limited to Hawaii. At least 19 states have borrowed more than $50 billion from the feds to help cover their depleted UI trust funds. The Chamber of Commerce Hawaii has joined a consortium of 15 other state chambers petitioning Congress for relief on that debt.
HB 1278 will cause some 5,000 businesses currently not paying anything into the fund under Schedule C to pay about $96 per employee annually, according to Guss and others in the business community.
Ige has 10 days to approve, veto or allow the bill to become law without his signature.
Meanwhile, some Hawaii workers who’ve waited months for unemployment payments rallied outside the State Capitol Wednesday to demand that DLIR reopen its offices to the public.
The workers, led by a coalition of labor unions and advocacy groups including the Hawaii Workers Center, Unite Here Local 5 and the Hawaii Nurses Association also lamented the state’s outdated claims system.
Sen. Maile Shimabukuro, a Waianae senator who spoke at the rally, said lawmakers allocated $10 million to fix those computers.
“DLIR is working as fast as they can to modernize their system. I know it’s not fast enough,” she said.
The system did not work fast enough to help Robyn Conboy, who is self employed but also held a job before the pandemic shuttered businesses.
Conboy said she called DLIR hundreds of times one week but couldn’t get through to anyone.
“It’s frustrating, we can’t go on this way,” Conboy said. “We seemed to be being ignored and put off.”
Like others at the rally, Conboy called for unemployment offices to open to in-person visits again.
“They opened the DMV, they’ve opened everything else successfully, the need is real. The time is now, and we need to have some answers,” she said.
Civil Beat reporters Blaze Lovell and Kevin Dayton contributed to this report.
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