A panel appointed by Gov. Asa Hutchinson on Friday called for the state to use $165 million of its federal coronavirus relief funds to shore up its unemployment insurance trust fund and thus avoid raising taxes on employers.
Department of Commerce Secretary Mike Preston said the state's unemployment insurance trust fund now has about $630 million and he expects the fund to have about $600 million by the end of this month.
"This [$165 million] brings us above that $750 million threshold that we need," he told the 15-member Arkansas Coronavirus Aid, Relief and Economic Security Act Steering Committee. The Republican governor appointed the committee to recommend the best uses of its $1.25 billion in federal coronavirus relief funds.
"If we don't do this, it is going to trigger the automatic stabilization tax increase, which will increase the tax that employers are paying per employee," said Preston, who serves on the steering committee. "We want to avoid that as a state."
In a memo to the steering committee, Division of Workforce Services Director Charisse Childers and Preston said the covid-19 pandemic has resulted in unprecedented unemployment rates and led to the depletion of funds in the state's unemployment insurance trust fund.
To minimize tax increases for employers, "we are requesting funding from the Arkansas Coronavirus Aid, Relief and Economic Security Act (CARES) Act Steering Committee to fund the increase in unemployment benefits that are being paid," Preston and Childers wrote in their memo.
The unemployment insurance trust fund is supported solely by Arkansas employers through taxes and required reimbursements, Preston and Childers said in the memo.
Committee Chairwoman Elizabeth Smith said the committee originally agreed to set aside $250 million of the federal funds to consider allocating after Oct. 1, but "we have learned ... Sept. 30 is a key date, and we need to have things taken care of beforehand," for the benefit of the state's unemployment trust fund.
In an email later Friday, Alisha Curtis, a spokesman for the Commerce Department, said stabilization tax rates for employers are calculated as of Sept. 30 each year for the next calendar year, and they are based on the balance of the unemployment trust fund.
The tax rate now is 0.2%, and without "these extra funds, it would have increased to 0.3% for Calendar Year 2021," Curtis wrote.
"These funds will help prevent tax increases on small business owners struggling to get back on their feet. While some have advocated for more money in the unemployment insurance trust fund, this is a balanced amount that will avoid raising taxes and will assure that the trust fund is healthy into the future," Hutchinson said in a statement released through his spokeswoman Friday.
"There continues to be thousands of Arkansans that remain unemployed and we want to assure the trust fund is sufficient without raising taxes," Hutchinson said. "Numerous other states are doing the same in using CARES Act funding to rebuild their unemployment insurance trust funds."
REMAINING CARES FUNDS
Committee member Larry Walther, who also is secretary of the state Department of Finance and Administration, estimated that the state has about $278.7 million in federal coronavirus relief funds that the committee hasn't yet recommended allocating.
Granting the Department of Commerce's request would leave about $113 million for other state projects, Walther said.
Another committee member, Sen. Will Bond, D-Little Rock, said he doesn't consider the request for $165 million to be an emergency situation because the unemployment insurance trust fund already has more than $600 million.
"We are getting in a huge hurry" to spend federal relief money when the steering committee should look at using the funds for other state needs, such as more school nurses or health and safety payments for teachers amid the pandemic, he said.
Bond said an employer with 10 workers would save $100 in unemployment insurance taxes and an employer with five employees would save $50 next year with the Department of Commerce's request for $165 million in federal coronavirus relief funds.
For small employers, "this is not a significant issue," said Bond, who is an attorney.
Employers are already looking at an increase in the unemployment taxes they pay starting next year.
Under state law, the taxable wage base for employers will increase from the current $7,000 to $10,000 per employee, said Bryan Hicks, chief financial officer for the Division of Workforce Services.
"That in itself will be a 30% increase in their state unemployment taxes, so it is going up significantly anyway," he said.
"This [request for federal funds] would prevent the rate that employers would be paying from going up even more so," Hicks said. He said this would save employers about $10 million next year.
A steering committee member, Rep. Fred Allen, D-Little Rock, said large employers would benefit from this request more than smaller employers.
"I'll apologize if this [request] is rushed," Preston said, but he added that he thought more people were aware of the need for shoring up the state's unemployment trust fund, as he first brought it to the committee's attention in June.
There is a sense in the business community that this request is important because otherwise there will be a tax increase on Arkansas businesses to the tune of $165 million, he said.
Allen said the committee should have been given more time to vet the request.
Another committee member, Sen. Missy Irvin, R-Mountain View, said many small businesses are struggling to stay afloat.
She said $100 in tax savings would be a lot of money to small businesses with 10 employees in her district.
Irvin said she would support using $250 million in the federal funds to shore up the state fund.
The committee includes nine Hutchinson administration officials and six lawmakers. All but Bond and Allen approved the request.
The issue of the state's unemployment trust fund is separate from the $300 in federal supplemental funds given weekly to workers who lost their jobs because of the pandemic.