Budget & Tax

Senators seek to prevent employer tax increase

February 24, 2021

Ray Carter

Seeking to prevent a double-digit tax increase on Oklahoma employers, members of the Senate Appropriations Committee voted unanimously to allow the Oklahoma Employment Security Commission to direct millions of dollars in federal bailout funding to the state’s unemployment insurance fund.

Senate Bill 789, by Sen. James Leewright, would allow the Oklahoma Employment Security Commission to “claim” up to 25 percent of “federal emergency relief funds” provided to the state of Oklahoma during a declared state of emergency. The legislation also authorizes the commission to borrow federal funds when the state’s unemployment insurance fund balance is $25 million or less.

At the end of every fiscal year, the Oklahoma Employment Security Commission calculates the next year’s unemployment insurance tax rate based on the ratio of benefits paid out to the balance of the fund itself. In addition to that tax rate, the commission is required by state law to impose a 33.3 percent surcharge if the unemployment insurance fund balance falls below $25 million.

In September 2020, OESC announced a tax rate increase from a maximum of 5.5 percent to a maximum of 7.5 percent. Officials expect another tax increase in the coming year.

While SB 789 does not eliminate the 33.3 percent tax-increase trigger, Leewright said the bill adds “some provisions in there so that we can soften this and not use the nuclear option, wiping out businesses.”

“This is probably the most important bill I feel I’m running this session,” said Leewright, R-Bristow.

Sen. Julia Kirt, D-Oklahoma City, indicated the legislation would have placed as much as $300 million into the fund from the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funding received by the state of Oklahoma last year.

Leewright said the amount would have been less than that, based on the way CARES Act money was distributed between state and local governments, but agreed that the deposit would have been substantial.

Kirt questioned the wisdom of diverting that money with little legislative oversight.

“The Legislature will have no say in this next step,” Kirt said.

A recent report by the Legislative Office of Fiscal Transparency (LOFT) noted that Oklahoma “went from the lowest unemployment in January 2020 to one of the highest in March and April,” and that the huge surge in unemployment claims was further augmented by significant fraud.

In January 2020, the balance of Oklahoma’s unemployment insurance fund was approximately $1.1 billion. By February 2021, that balance had declined to approximately $98.9 million.

“We came into this pandemic with the fifth-most-solvent fund in the nation,” Leewright said. “We’ve depleted that fund.”

The LOFT report noted that $100 million dollars in federal Coronavirus relief funds has already been used to “stabilize the unemployment insurance trust fund and prevent the statutorily mandated 33.3% surcharge from being assessed on employers.”

But LOFT estimated the unemployment insurance trust fund will need another $669 million to prevent the highest tax rate increase from being imposed at the end of the current state budget year.

Leewright conceded that potential borrowing from the federal government is not ideal but said the alternative may be worse.

“I’m not always the one to advocate going and borrowing from the feds, but when it comes to implementing a 33.3-percent increase on payroll tax during the worst time we could do it on businesses, an option would be that we could go to these low-interest rates and spread that out over time, not killing businesses and using the nuclear option,” Leewright said.

The LOFT report showed that some comparable states have used significant amounts of federal relief funds to prop up state unemployment insurance programs. Iowa put $490 million, or 39 percent of its federal bailout funding, into its unemployment system. Nebraska placed $427 million into its fund. Alabama directed $300 million to its fund, while Idaho and Montana directed $200 million to their unemployment insurance funds.

Kirt was the only lawmaker to debate against the bill’s passage, although she ultimately voted for it.

“My biggest concern is leaving this much discretion to an appointed body over federal relief funds and over obligating the state for future funds,” Kirt said.

SB 789 passed the Senate Appropriations Committee on a 20-0 vote.