The 2021 legislative session recently wrapped up with the General Assembly utterly failing to address the over $1 billion deficit from unemployment insurance benefits accrued during the pandemic. Already struggling Colorado businesses are set to be stuck with the bill.
Colorado’s unemployment rate skyrocketed when the COVID-19 pandemic hit, climbing precipitously from 2.8% in February 2020 to over 12% two months later, according to the U.S. Bureau of Labor Statistics. It has remained at 6.4% since February 2021.
As the economy reopens, the number of Coloradans collecting unemployment remains high while more than a third of businesses in the state struggle to find workers to fill open positions. That makes sense given that Governor Polis continues to dish out unemployment benefits to Coloradans that far exceed the wages they would make in most of the available jobs.
More than just keeping unemployment numbers high, Polis’s policies have continued to run up the deficit in the Unemployment Insurance (UI) Trust Fund while the legislature sits idly by, refusing to use this year’s massive revenue windfalls to pay it down.
As it stands, Colorado has spent over $2 billion on unemployment benefits, and while the current unemployment rate is almost half of what it was in April 2020, it’s still nearly triple the pre-pandemic rate.
The Colorado UI Trust Fund, which pays out benefits to the state’s unemployed, had nearly $1.1 billion dollars in reserves before the pandemic, according to Common Sense Institute. By August 2020, that reserve had been completely exhausted, and the state started borrowing from the federal government to maintain benefits to the unemployed.
A March report by Legislative Council Staff estimated a $955 million fund deficit by the end of Fiscal Year 2021. It cruised past that mark over a month ago. The loans now exceed those projections by over $50 million. According to U.S. Department of Labor data, as of June 3, 2021, Colorado’s UI Trust Fund had an outstanding balance due of over $1 billion. That amounts to a $174 debt for every Colorado resident, including children.
Those loans from the Federal Government are only interest free until September 6.
As it stands, the ever-growing burden of that debt will fall on already struggling Colorado businesses through higher taxes. To make up the deficit, payroll taxes are expected to increase almost 25% each year until 2023. Total payments will grow to more than $316 million per year after 2023 to get the trust fund back to pre-pandemic reserves by 2028.
The Common Sense Institute explains that this course of action will especially hurt small businesses. If, for example, a business with 15 employees and a payroll tax burden of $6,900 in 2020 had to lay off 5 workers during the pandemic, that business will need to pay $9,560 in payroll taxes in 2021 despite now having only 10 employees. Rehiring the 5 employees would raise the bill to $14,340, double the amount it paid the year before, and the cost would only continue to increase over time.
In other words, taxes are going to climb and keep climbing for the better part of the next decade to pay off the federal UI loan plus interest.
There’s a much better road, if Polis is smart enough to take it.
Polis has reportedly considered using at least some of the American Rescue Plan Act (ARPA) money to pay off the debt on Colorado’s UI Trust Fund. But Colorado’s Building Back Stronger proposal—a joint initiative by the governor, Treasurer Dave Young, and the state legislature—did not definitively commit to doing so. The plan included a single line item of $717 million for possible spending on various “recovery and relief,” including “broadband, solar energy installation, and unemployment insurance trust fund.”
With the 2021 legislative session now in the rearview mirror, not one bill was adopted that follows through on any proposal to pay back the UI loans with ARPA or other funds.
Rather than waiting for the debt to put a strain on the state budget and then increasing taxes on businesses, lawmakers should dip into the nearly $4 billion dollars airdropped by the feds for just such a purpose.
Governor Unemployment could take the first step in salvaging his record on jobs by calling on them to do just that.
Jack Golden is a student at Hillsdale College and currently interns for the Fiscal Policy Center at the Independence Institute, a free-market think tank in Denver.
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