Oregon House OKs unemployment tax relief for businesses
Many Oregon businesses will see smaller increases in their unemployment payroll taxes, and even forgiveness of some amounts, as a result of a bill that's halfway through the Legislature.
House Bill 3389 cleared the House on a 56-0 vote Thursday night, April 15, and went to the Senate. Two key members of the relevant Senate committee took part in drafting the bill, so it is not expected to change in that chamber.
The bill also sets the experience rating for businesses for 2022, 2023 and 2024 — used to determine tax rates — at 2020 levels, which were determined before the coronavirus pandemic resulted in a steep economic downturn a year ago.
Many businesses closed or curtailed their operations as a result of government-ordered shutdowns intended to curb the spread of the COVID-19 coronavirus in public places.
"One result of these closures and limited-occupancy requirements is increased unemployment tax rates due in 2021 for prior-year staff reductions," said Rep. Paul Holvey, a Democrat from Eugene and one of the bill's floor managers.
In December, the Employment Department announced that payroll tax rates would go up based on a shift to a different schedule. The agency also said employer experience ratings would be adjusted to reflect employee layoffs and usage of unemployment benefits from the state trust fund — a move affecting thousands of businesses. (Payroll taxes fall on employers, not employees.)
House Speaker Tina Kotek and Senate President Peter Courtney convened a group to consider options.
As chairman of the House Business and Labor Committee, Holvey was one of five lawmakers who took part in a group seeking ways to ease the payroll tax burden on businesses yet maintain the solvency of the state unemployment trust fund. They got technical help from David Gerstenfeld, the department's acting director for almost a year, and agency staff.
Holvey said the bill would result in savings of $2.4 billion to Oregon businesses over the next nine years, while it rebuilds the trust fund to $4.8 billion by the end of the 2023-25 state budget cycle.
"This kind of bill makes the whole session worthwhile," said Holvey, a retired union representative.
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 went up by half a percentage point.
• If the tax rate went up between 1 and 1.5 percentage point, a business could be eligible for forgiveness of 50% of the deferred amount, and if the rate went up between 1.5 and 2 percentage points, forgiveness of 75% of the deferred amount. Businesses would be eligible for tax forgiveness only if they filed wage reports and paid the rest of their taxes on time in 2021, and are current on their accounts with the Employment Department.
• Employer experience ratings for 2020, which were set before the onset of the pandemic, would be the basis for payroll tax rates in 2022, 2023 and 2024. It would exclude 2021.
• 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 about 10% lower. The state trust fund was at $5 billion at the start of the pandemic; it is about $3.7 billion now. The fund is expected to dip to $3.5 billion in mid-2023, at the end of the 2021-23 budget period, before rising back to $4.8 billion two years later.
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 that the state will have to borrow this time. Employers in states that borrow repay the costs and interest through higher payroll taxes.
The Legislative Revenue Office estimates that based on current schedules, payroll tax collections are projected to be $291 million less in the 2021-23 cycle, $650 million less in 2023-25, and $840 million in 2025-27.
The bill got endorsements from the Oregon State Chamber of Commerce, Oregon Restaurant and Lodging Association, Oregon Business & Industry and National Federation of Independent Business/Oregon.
In addition to Holvey, legislators who crafted the bill were Reps. Daniel Bonham, R-The Dalles, and John Lively, D-Springfield, and Sens. Chuck Riley, D-Hillsboro, and Bill Hansell, R-Athena. Riley and Hansell are on the Senate's counterpart committee.
Bonham, a small-business owner, said his hope going into the 2021 session was for lawmakers to focus on the issues created by the pandemic, downturn and Labor Day wildfires and to do so with minimal partisanship.
"I had many concerns about what we were going to try to do in terms of the scope of the session," he said. "I think this bill really does embody everything I would want us to focus on this session."
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