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Despite fund transfers, unemployment tax to increase

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Alabama employers who pay into the Unemployment Insurance Trust Fund could see a tax increase of about 91 percent this year, despite efforts in recent months to shore up the fund with hundreds of millions of dollars in CARES Act money.

“(The CARES Act money) is bringing it down, but there is still going to be an increase,” Tara Hutchison, a spokeswoman for Alabama’s Department of Labor, told Alabama Daily New on Tuesday.

Hutchison said that 91 percent was the most recent number. The increase has to be finalized by the end of the month and employers will be notified. About 92,000 employers pay into the system that provides unemployment benefits to Alabamians.

State officials authorized this week a transfer of about $87 million in CARES funding, most of it coming from allocations made last year to county and municipal governments but not yet spent.

The transfer this week drew criticism from local government groups.

“Knowing that many of our municipalities are experiencing ongoing expenses related to the pandemic, the League is disappointed with the decision to reallocate the majority of remaining CARES Act funds originally earmarked for local governments,” Alabama League of Municipalities Executive Director Greg Cochran said in a written statement. “However, our organization will diligently continue to work with the Department of Finance, as well as our congressional and legislative leaders to advocate for additional funding to address the financial impact COVID-19 continues to have on municipal budgets.”

Rosemary Elebash, state director of the National Federation of Independent Businesses, said Tuesday a 91 percent tax increase could be significant for many employers.

“Every employer will be different,” she said. “The one thing that get lost in all this is only employers pay the tax, employees don’t. It comes out of the bottom line.”

Last year, the Business Council of Alabama launched the “Keep Alabama Open” campaign urging state leaders to keep policies that allow companies to operate safely and remain in business during the pandemic. Katie Britt, who leads the organization as president and CEO, thanked Ivey and lawmakers for doing what they could to delay and lessen the unemployment tax increase.

“Small business is the heartbeat of Alabama. I applaud Gov. Ivey and her staff for continuing to work diligently in an effort to reduce the impact COVID-19 has had on businesses,” Britt said. “The reallocation of CARES Act funding to the unemployment trust fund has significantly reduced the unemployment tax increase from estimates made in 2020, but unfortunately, this automatic increase will still be hard-hitting to many in our state.”

Exactly how much money employers pay in unemployment taxes varies on their experience rating. In September, Labor used an example of a business with 20 employees and quarterly taxable payroll of $160,000 paying about $1,040 in unemployment tax. Without any transfers, they could have paid $6,320.

“We’re doing everything we can to bring that number as low as we possibly can because the thing to remember here is if you put this burden on employers, especially the small businesses, it’s going to put some of them under,” Hutchison said.

Closed businesses means more people unemployed.

“That’s bad for everyone,” Hutchison said.

As of last week, more than 91,000 Alabamians were receiving unemployment benefits, according to Labor.

The Alabama Department of Finance oversees the spending of more than $1.7 billion in CARES Act funds given to the state in early 2020.

Finance Director Kelly Butler said Tuesday a total of $87 million is being directed to unemployment, $72 million from local governments and $15 million from higher education. The CARES Relief Funds doled out by the state does not include money sent directly in education institutions.

Butler said this is likely the last significant reallocation of the original CARES money and the impetus for this one is the Unemployment Insurance Trust Fund.

“The Department of Labor has to set the employer tax rates and notify employers by the end of January,” Butler said. “And so that was the driving force behind this decision.

“… I think we’ve done as much as we can do for the Unemployment Trust Fund in order to impact the tax rate.”

Spending legislation approved in May said that six lawmakers, the leaders in both chambers and the four budget chairman, had to unanimously approve any changes to the original allocation of federal money.

Butler and lawmakers indicated more money — as much as $287 million — could be dedicated to the trust fund to cover COVID-19-related unemployment costs.

Rep. Steve Clouse, R-Ozark, said that if there is additional federal money available to the state in future COVID-19 relief packages, he and other state leaders would like to see the unemployment fund restored to what it was pre-pandemic. He said that would ensure money is available to recipients and possibly decrease the tax rate — or at least prevent additional increases.

“There may be more money we could put in the fund to get it up where it needs to be,” Clouse, chairman of the House General Fund committee, said.

Until late last month when Congress passed another COVID-19 relief package, state leaders were under a Dec. 30 spending deadline for the original allocation. That’s now been extended one year.

On Monday, Association of County Commissions of Alabama Executive Director Sonny Brasfield said he asked the state to reverse the decision to transfer money away from local governments.

“The association cannot express in strong enough terms its disappointment and dismay at today’s decision,” Brasfield said in a written statement. “For more than six months, counties have struggled with changing guidance, inconsistent responses and moving eligibility requirements. Many counties have expended funds based on email communication stating that items would be eligible for reimbursement only to learn today that funding has now been withdrawn without warning.”

Butler said that if local governments got their reimbursement requests in by the end of the year, they will receive money for qualified expenses.

Butler has previously talked about the strict federal rules on the spending of the CARES money and the complicated allocation process.

“The frustration expressed in (the county association’s) press release, some of those things are shared frustrations … it’s just part of the process of getting through this,” Butler said.

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