By Jeff Harrington, Times Staff Writer
In Print: Friday, December 17, 2010
For 19 straight months, Florida's unemployment rate has been stuck in double digits.
Fewer companies are paying taxes into the state's unemployment trust fund, which is used to distribute benefits to the jobless. And the first interest payment is coming due on more than $1.8 billion in federal funds that Florida has borrowed so far to prop up that now-depleted fund.
Put it all together and it adds up to a potentially nasty tax hike in 2011 — as some 463,000 Florida businesses paying unemployment taxes found out in mailings from the state Department of Revenue over the past week. In some cases, taxes will triple.
The minimum annual rate — charged to an employer with a solid history of retaining employees — rose from $8.40 per employee to $25.20 in 2010. With the tax alerts just sent out, it will jump to $72.10 per year effective Jan. 1. The maximum rate, which affects companies that have laid off the most workers, remains unchanged at $378 per employee.
In addition, businesses are bracing for a second mailing in February: a special assessment of $9.51 per employee to cover a $61 million interest payment on the federal loan that's keeping the unemployment fund afloat. Employers have to pay the assessment by June 30.
It could have been worse.
After Florida's unemployment trust fund ran out of money in the summer of 2009, employers were supposed to quickly cover the shortfall based on state law. In fact, the minimum annual rate would have jumped twelvefold to $100.30 per employee last January had the Legislature not intervened to postpone the worst of the pain for a couple years.
For some companies, the hike is painful nonetheless.
Dave Kirkland, who runs Sunset Appliance Service, was inching closer to adding another employee at the Clearwater repair business that now consists of just him and his wife. But news about yet another tax boost is making him second guess his plans.
"It would unfortunately be pretty much a deal-breaker" to hiring, Kirkland said. "The reality is that taxes are killing me now. Everything gets taxed now, it seems. I would have to really, really look hard to see if it's affordable to hire someone."
Not all business owners see the latest tax hike by itself as that onerous.
Paige Fisher Simpson, owner of Tampa air conditioning and heating company Simpson Air, maintains that the tax is unfairly calculated, with companies penalized for making even one unemployment claim within three years. But she also doubts the higher tax rate will financially cripple companies as some fear.
After receiving the tax notice, Simpson asked the payroll company she contracts with to run the math. The estimated tab: another $79 per employee, or roughly $2,400 more to cover her 27 workers.
"It's a lot of money," she said, "but it's not going to put me out of business."
The Florida Retail Federation and Florida Chamber of Commerce have both objected to the estimated $400 million worth of unemployment tax increases, saying it's too much of a burden for companies struggling to pull out of the recession.
Samantha Padgett, deputy general counsel with the retail federation, said as recently as August businesses were told the minimum rate would rise to $44. With the minimum rate coming in even higher, plus the special assessment, "you're talking around an $81" payment per worker, Padgett said. "It does put a significant crimp on employers."
Some of the smallest of the small businesses will see the largest percentage increases. Almost 160,000 businesses that pay the minimum rate — the rate facing the biggest tax increase — have between one and four employees.
Unlike large, sophisticated companies that have had months to prepare their budgets, this may be the first time that many small businesses are learning about the increase, said Adam Babington, vice president of governmental affairs with the Florida Chamber of Commerce.
Increasingly, Babington noted, companies are picking up the tab for those no longer paying into the system. This year, the benefits owed by companies that have gone out of business or otherwise no longer pay into the system rose from $228 million to $1.3 billion.
This week, the chamber asked members for creative fixes to the unemployment tax situation to propose to the Legislature after the holidays.
One alternative floated for months is to make the employers who lay off the most people pay more into the system. Their costs have been subsidized by businesses with few or no layoffs. The problem is that hard-hit industries like construction will suffer the most, possibly enough to put some companies out of business, only exacerbating the unemployment crisis.
"At that point, you put more socialized costs on to other employers and their rates will go up anyway," Babington said.
Another option is to borrow money from the state's general fund to pay the federal interest payment, a politically challenging scenario considering Florida is battling a potential $3.5 billion budget deficit next year. "We don't expect a big Christmas present from general revenue," Padgett said.
Some are advocating an approach used in Texas: issuing low-interest, long-term bonds to repay the federal loan. A bond issue would help lower the interest rate on the $1.8 billion owed to the federal government from the current 4 percent to about 2.3 to 2.9 percent, Padgett said.
In its missive to members, the Florida Chamber suggests perhaps the ideal solution is the obvious one: "JOBS… JOBS… JOBS… the fastest way to solve this problem is for the Florida Legislature and Gov.-elect Scott to spend every ounce of their energy on making Florida an attractive place to once again create private sector jobs."