Saturday, December 13, 2003

Jobless insurance hike a blow to business

By Steven Oberbeck
The Salt Lake Tribune

Utah businesses can expect their unemployment insurance premiums to increase from 40 percent to as much as 300 percent in the coming year.
   
After several years of economic downturn and a statewide unemployment rate that breached 6 percent, the Utah Unemployment Insurance Trust Fund lacks adequate reserves for future benefit payments, which under state law must be sufficient to pay 15 to 19 months of unemployment benefits, said Christopher Love, the fund's director.
   
"Our rates have to go up" to replenish the reserves, he said.
   
Utah businesses pay into the fund based on a complicated formula that considers the level of taxable wages they pay their workers. The formula also takes into account how many of a company's former workers collected benefits over the previous four years.
   
For some businesses, the increase will push the annual premium cost of unemployment insurance for each employee from $22.50 to more than $90. A small business employing 100 people, for example, may see operating costs increase nearly $7,000 a year as a result of the increase.
   
Utah 's small-business community will be hit particularly hard by the increase, said Peter Corroon, president of the Salt Lake Vest Pocket Business Coalition, a small business advocacy group.
   
"We're pretty nervous about it," he said. "Profit margins are slim for many small businesses and a lot of them operate right on the edge. If they get hit with an unexpected $50 here and another $50 there, pretty soon not much is left."
   
Maxine Turner, owner of Cuisine Unlimited, called the increase "terrible."
   
Cuisine Unlimited operates in the catering industry, which is known for a relatively high rate of employee turnover.
   
"Yet over the past three years, we've only had a [tiny] turnover among our staff" of 30, she said. "We worked particularly hard the past 18 to 24 months to tighten our belts so that we could preserve every single job and not contribute to the state's unemployment problem."
   
Every dollar increase in premiums Cuisine Unlimited must pay means another dollar that no longer can be invested in the business, Turner said. "It is another expense in a market that is already so tight that it is hard for us to raise our prices."
   
The need for a premium increase is not surprising, said Mark Knold, Utah Department of Workforce Services senior labor market economist.
   
"During the 1990s, the fund built up quite a surplus and reached the point where some legislators were talking about tapping into it" to use the money for other purposes, Knold said.
   
Although lately unemployment claims in Utah have been dropping, they still are well above the levels of the late 1990s, Knold added.
   
From 1997 through 1999, the fund maintained reserves of approximately $630 million. In those years it paid between $70 million to $90 million a year in benefits.
   
In contrast, the fund last year paid $250 million in benefits; this year it likely will pay $230 million. The fund is expected to finish this year with approximately $380 million in reserves.
   
Love pointed out that the premiums Utah business must pay are "countercyclical" to the state of the economy. "When times are good they don't have to pay so much but then they get hit when times aren't so good," he said.
   
He added that the requirement that the unemployment insurance fund maintain adequate reserves has helped the state avoid insolvency problems many other states are now facing in their unemployment insurance systems.
   
steve@sltrib.com

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