Like most local businesses, The Pizza Press has had to muddle, adapt and improvise to stay afloat during the COVID-19 pandemic. The Pearl City facility drastically reduced hours for its 25 employees and relied on a “skeletal crew” to work.
“We’re in survival mode to pay our bills, pay our suppliers and keep the lights on,” said co-owner Sarah Nguyen. “Every day we look at our numbers. We look for possibilities – what works, what doesn’t.”
The company typically pays around $500 a year in unemployment insurance tax, Nguyen said. These funds help keep the state’s UI Trust fund solvent to meet unemployment claims.
But COVID-19 has decimated Hawaii‘s economy, and the $600 million in the fund when the pandemic hit evaporated in less than three months as unemployment reached a staggering 25%.
Under state law, when the trust fund is depleted, as it is now, employers like Nguyen will have to pay significantly more UI taxes at the highest possible contribution rate.
That would leave many companies bearing at least three times the cost of the UI tax while trying to recover from the pandemic, officials say.
At this rate, “I don’t know how long we would last,” Nguyen said on Tuesday. “We hardly make it. Its scary. I’m pretty exhausted. That’s the last thing we need.”
On Wednesday, the state legislature sent Gov. David Ige a bill that would save local businesses from having to pay those drastically higher rates under what is known as “Schedule H” through 2022.
Instead, their rates will be increased slightly, from Schedule C to Schedule D, as recommended by the Department of Labor and Industrial Relations.
The measure, House Bill 1278, also prevents employers from paying more based on how many workers they laid off or reduced shifts. That’s because the pandemic has caused virtually everyone to cut jobs and work through no fault of their own.
The bill met no opposition from the legislature. It passed through both chambers almost unchanged and did not require a conference to settle differences of opinion.
It was largely seen as a no-brainer to keep Hawaii’s struggling economy afloat – and it had to get to Ige by early March to avoid the austere Schedule H tariffs taking effect.
What the bill doesn’t solve, however, is the looming long-term problem of how to repay the $700 million — and counting — the state owes the federal government to meet Hawaii’s rising UI claims.
An insurmountable guilt
According to some estimates, including one from the DLIR last May, the state could owe the Feds as much as $1.2 billion by the end of 2021 in funds needed to keep up with any UI demands.
The state’s struggling companies couldn’t realistically pay off those debts through UI taxes, say local payroll experts and some lawmakers.
In 2019, the tax at a Schedule C rate generated $174.5 million. After claims were paid, the fund grew by more than $47 million, according to DLIR.
Barron Guss, president and CEO of Hawaii-based staffing firm Altres, said the surplus will do little to dampen growing debt to meet claims.
Additionally, he and others argue, there is a “moral argument” that the state — not employers — should cover the debt because the state has forced businesses to downsize to stem the spread of COVID-19 .
“The reality is that the state was responsible for this,” Sylvia Luke, House Treasurer, recently told Civil Beat. “Even if we put the employer’s rating at the highest level (Schedule H), they wouldn’t be able to bring in enough money to pay off the loan anyway.”
If the federal funds aren’t repaid by November 2022, interest will accrue and local businesses would see their federal payroll tax rates increase, officials say.
Guss compared the pandemic to a natural disaster. When a disaster strikes, the Federal Emergency Management Agency does not require communities to pay back federal dollars under threat of penalties, he said.
When the pandemic hit, the government’s UI trust fund was the “only way to get money” for a population suddenly hit by a financial crisis, Guss added.
“The system was not designed for emergency relief. It’s designed to… regulate the ebb and flow of an economy,” Guss said in a recent video. “It wasn’t designed to serve essentially 25% of the population at the time.”
Still, it’s not clear how shifting the burden of debt from employers to the state might affect essential services, as state leaders are already grappling with a sizeable budget deficit caused by the pandemic.
Lawmakers said Wednesday they are waiting to see whether relief of borrowed UI funds is included in the federal government’s next major COVID-19 relief package before deciding how to address the issue.
The problem is not limited to Hawaii. At least 19 states have borrowed more than $50 billion from the Feds to cover their depleted UI trust funds. The Hawaii Chamber of Commerce has joined a consortium of 15 other state chambers in petitioning Congress to cancel this debt.
According to Guss and others in the business community, HB 1278 will cause about 5,000 companies that are not currently paying into the Schedule C fund to pay about $96 per employee annually.
Ige has 10 days to approve, veto, or allow the bill to go into effect without his signature.
Applicants are still not getting through
Meanwhile, some Hawaiian workers who had been waiting for months to receive unemployment benefits rallied outside the state capitol on Wednesday to demand that DLIR reopen its offices to the public.
The workers, led by a coalition of unions and advocacy groups including the Hawaii Workers Center, Unite Here Local 5 and the Hawaii Nurses Association, also bemoaned the state’s antiquated entitlement system.
Sen. Maile Shimabukuro, a Waianae senator speaking at the rally, said lawmakers have set aside $10 million to fix these computers.
“DLIR is working on upgrading their system as soon as possible. I know it’s not fast enough,” she said.
The system wasn’t working fast enough to help Robyn Conboy, who is self-employed but also had a job before the pandemic shut down shops.
Conboy said she called DLIR hundreds of times in a week but was unable to reach anyone.
“It’s frustrating, we can’t go on like this,” Conboy said. “We seemed to be ignored and put off.”
Like other participants in the rally, Conboy called for employment centers to be reopened for in-person visits.
“They opened the DMV, they opened everything else successfully, the need is real. The time is now, and we must have answers,” she said.
Civil Beat reporters Blaze Lovell and Kevin Dayton contributed to this report.
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