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Some business groups want state lawmakers to go further on a hammered-out compromise.

Oregon businesses, business lobbyists and lawmakers from both parties blessed a bill that would let some businesses defer part of their unemployment payroll taxes and pay a little less to a reduced state trust fund in future years.

House Bill 3389, which the House Rules Committee heard Thursday, April 1, also would set the payroll tax rates for the next three years (2022 to 2024) at 2020 levels, which were determined before the coronavirus pandemic resulted in a sharp economic downturn a year ago.

The closure and curtailment orders affected the 10 Washington County and two Clackamas County shops in The Barbers chain owned by Kimberly Spiegelberg. Her payroll tax rate was a relatively low 1.3%, given the high turnover in the industry, but jumped to 2.1% after the pandemic induced layoffs.

"The scariest part as an employer is that if nothing is done, this rate stays with me for three years," she testified.

According to Rep. Paul Holvey, a Democrat from Eugene and one of the key lawmakers involved in its drafting, the bill would allow employers to defer $100 million this year. Because of a lower target for the state unemployment trust fund, he said, it would save them $2.4 billion in taxes over a decade. (Employees do not pay into the fund.)

"I think it's something to recognize that we are doing what we can" for business, said Holvey, a retired union representative. "We must be careful to avoid unintended consequences and understand that our efforts here and the numbers are estimates."

The bill also got endorsements from the Oregon State Chamber of Commerce, Oregon Restaurant and Lodging Association, Oregon Business & Industry and National Federation of Independent Business/Oregon.

A couple of those lobbyists also suggested that lawmakers go further by letting some businesses defer even more of their 2021 payroll taxes than the bill allows, or using some of the state's share of $780 million in federal aid available under President Joe Biden's pandemic recovery plan as a one-time offset of payroll taxes.

Acting Director David Gerstenfeld of the Oregon Employment Department, whose staff was consulted in the drafting of the state bill, said officials are awaiting U.S. Treasury Department guidance about how it conforms to a ban on using federal funds for state tax cuts. Gerstenfeld said that as drafted, the bill has raised no objections from the U.S. Department of Labor, which oversees state unemployment systems.

What the bill does

The bill does these things:

• Businesses can defer payment of up to one-third of their 2021 payroll taxes until June 2022 if their tax rate has gone up by half a percentage point.

• Payroll tax rates for 2020, which were set before the onset of the pandemic a year ago, would be the basis for rates in 2022, 2023 and 2024.

• The Employment Department would base its payroll tax collections for the state trust fund on a 20-year horizon, instead of the current 10 years, and the target would be lower. The state trust fund was at $5 billion at the start of the pandemic; it is about $3.7 billion now. The agency has paid out a total of $8.4 billion in benefits over the past year, but much of it was from federal funds. Slightly more than $700 million has gone to 100,000 Oregon self-employed and gig workers, who had been ineligible for any benefits until Congress passed the CARES Act last year.

Oregon was among the few states that did not borrow from the federal government to pay unemployment benefits during the Great Recession a decade ago. Gerstenfeld said he does not anticipate this time that the state will have to borrow; employers would repay the higher costs and interest through higher payroll taxes.

Balancing act

"This bill offers a balance of short-term relief — some targeted relief to the businesses that saw the biggest increase in tax rates — and some longterm adjustments we think the trust fund can weather," he said. "We are very cautious about making sure that an adjustment over time would not put the overall solvency at risk."

No one testified against it during the hearing, although the committee did receive a statement from Tom Cusack of Lake Oswego, who writes the Oregon Housing Blog, seeking further information about the basis for the bill.

The bill was instigated by Democratic legislative leaders and put together by five lawmakers, including the Democratic chairs and top Republicans on the House and Senate business and labor committees.

Rep. Daniel Bonham, a Republican from The Dalles and a small-business owner, said his original proposal was for a freeze of payroll tax rates at 2019 levels. He acknowledged that he and colleagues were focused on relief for businesses within consideration of other factors.

He said his participation in the small group made him feel his concerns were heard in a House where Democrats hold a 60% majority.

"I threw out a couple of bad ideas that were dismissed," he said. "We talked through why they were bad ideas and we came to a different concept on how to move forward.

"I really do like where we have landed. I think it showed compromise."

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NOTE: Corrects error in quote from David Gerstenfeld.

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