Future of Unemployment Insurance By Tom Yamachika, President Multiple readers have asked about unemployment insurance and how it is going to fare after the pandemic. This will give you an idea of how the system works. State unemployment insurance (SUI) is largely funded by employers. Most employers are charged tax that depends on two things: the overall health of the fund into which SUI tax is collected, and the claims history of the employer. So, an employer with a long history of chargeable claims, for example, will pay more than others. Also, if there is lots of money built up in the fund then the tax rate goes down for everyone. The health of the fund determines the proper tax rate schedule. The schedules are named after a letter of the alphabet, with A the least costly schedule and H the most expensive. The fund health is measured at the end of the year, and that measurement is used to set the rate for the following year. Here is a chart of the SUI rate schedule for the past 20 years: Source: DLIR Reports compiled by Tax Foundation of Hawaii.
Although the Great Recession of 2008 and related events caused the fund to run out of money and we needed to borrow around $180 million from Uncle Sam, employers were not subjected to the dreaded Schedule H because our lawmakers passed special legislation to control the SUI rates and override the normal formulas for the years 2010 through 2012 (the orange bars in the diagram). What can we expect once the year ends? Lately, the volume of unemployment claims has been so great that the authorities set up a processing center at the Hawaii Convention Center. Our fund started off the year at nearly $600 million but has been draining rapidly. A news release dated July 2, 2020, said that the Department of Labor and Industrial Relations already has paid out $1.85 billion in benefits. Fortunately, federally funded benefits such as the extra $600 per week paid to those on unemployment are not charged to employers because that money does not come from our fund. The State’s budget bill, Senate Bill 126, section 38, appropriates federal CARES act money to fund an additional weekly unemployment benefit of $100 per week once the federal $600 per week runs out. Those benefits will not affect the SUI fund either and should not count against employers for the same reason. Nevertheless, with an unemployment rate peaking at 23.8% in April, a tremendous strain has been placed on the fund. There will be a spike in SUI rates next year unless our government does something to prevent it, as it did for the years 2010‑12. Is our government simply going to wait around for the automatic increases to take effect from the beginning of 2021? Some businesses might not survive another hit at that time. Perhaps some thought should be given sooner rather than later to the impact of elevated SUI rates.
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Damn the Tax Clearances, Full Speed Ahead!
By Tom Yamachika, President Several articles in this space have been about features in Governor Ige’s emergency proclamations. We are now on the tenth one and counting, which makes us wonder about the 60-day limit written into the emergency powers statutes (see HRS section 127A-14(d)), but that issue may be sorted out in lawsuits that were recently filed. We have previously written that the list of laws suspended by the proclamations is 20 pages long. This proclamation is no exception, with the list of suspended laws beginning on page 11 and ending on page 31. On this 20-page list are two lines suspending HRS section 103-53, relating to tax clearances. That law provides (more correctly, used to provide) that people who want to do business with the State of Hawaii or municipal governments in it need to be current with their state and federal taxes. A business that wants to bid on a government project, or that is seeking final payment on a government project it worked on, needs a piece of paper from the Department of Taxation saying that it has filed all the state and federal tax returns it needs to file, and has paid the taxes shown on those returns. There are exceptions provided: permission to bid or to receive final payment can be granted if the taxpayer is fighting with the Department about whether it indeed owes tax, or if the taxpayer is current on a payment plan that both the taxpayer and the Department have agreed to. So, could someone tell me the thinking behind why this requirement needs to be suspended? COVID-19 upended our tourism economy and state tax revenues have fallen into the toilet. Don’t we need to make sure that the taxpayer dollars we are spending are spent with vendors who have done their part to keep our government going? The emergency powers statute, HRS section 127A-13(a), allows for suspension of “any law that impedes or tends to impede or be detrimental to the expeditious and efficient execution of, or to conflict with, emergency functions,” and allows the Governor to “[r]elieve hardships and inequities, or obstructions to the public health, safety, or welfare, found by the governor to exist in the laws and to result from the operation of federal programs or measures taken under this chapter, by suspending the laws, in whole or in part.” Does suspending the tax clearance requirement on a categorical basis satisfy any of those legal requirements? We previously wrote that the Governor tinkered with the tax code in the proclamations by shutting off distribution to the counties of what little transient accommodations tax revenues we have left. So, doing a money grab was fine under emergency powers. But we are allowing vendors to the State to do business and be paid without making sure they pay their taxes? Is that even a consistent philosophy? Again, we are not talking about people who owe taxes and legitimately can’t pay them, because of our economic collapse or otherwise. They can get forbearances or payment plans from the Department and still be qualified to bid on or receive State contracts. The same is true with people who have a genuine dispute with the Department over whether they legally owe tax. So, who does this law suspension benefit? Was this suspension really thought through? Future of the Aloha Stadium By Tom Yamachika, President While everyone’s attention is focused on COVID-19 and racially charged police brutality, we should also pay some attention to major happenings here at home. One of them is the venerable Aloha Stadium, former home to the Aloha Bowl and now affectionately called the Rust Bucket. The stadium was built using a then-new product called “Weathering Steel,” which was supposed to develop a thin coat of rust on the outside of the steel that would prevent the steel from rusting any further. The makers of this product didn’t factor in Hawaii’s salt-laden moisture, however, and the stadium developed way more than a thin coat of rust. Then there were bleachers that were supposed to move and convert its football shape into a baseball configuration but wound up being non-movable. Hawaii residents did get some use out of the stadium but its condition has deteriorated further and now needs significant maintenance. To deal with this problem, our government came up with the idea of NASED, an acronym for New Aloha Stadium Entertainment District. It even has its own nifty website. The idea was that a design firm would be hired to come up with some plans, and then a Public-Private-Partnership would be formed by late 2020 between the State and a selected private developer to do the build-out. The design firm, in late 2019, produced three draft concept plans that would be put out for discussion and debated: Plans for restaurants, retail, entertainment, hotels, and residences are presented in the three renderings.
The plan is for the State to put up $350 million, with $20 million coming from the general fund and the rest being borrowed through a bond issue. That sounds like a good deal, with 25 years of maintenance costs projected to be $423 million. But there are still some tough questions to be answered. The land on which the stadium sits is 98 acres owned by the State. Access to the area is very easy, with Kamehameha Highway, the H-1 Freeway, the Moanalua Freeway (H-201), and a new Stadium rail station serving the area. Do we really want the entire site developed as an entertainment district? We have a major recession that is expected to continue for a while and continued high unemployment. What about housing, especially affordable housing, that was previously identified as a high priority for our State? Can we afford to take the risk of building a new stadium with an entertainment center that may become a financial white elephant like our convention center? The financial plan assumes that the State’s share is going to be $350 million, but the actual number might be nowhere near that if, for example, the selected developer uses COVID-19 as an excuse to jack up the price tag. In any case, shouldn’t the financial drain that this project will cause be justification enough to push the pause button, as Honolulu Mayor Caldwell did on the proposed $772 million Blaisdell Center renovation project? Will this project become Convention Center 2.0 or Rail 2.0? Let’s make sure we are getting something we really need at a price we can afford to pay. |
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