The Idaho Senate has approved a major tax-cut bill for Idaho employers, passing SB 1195 on a 34-1 vote Wednesday to cut the unemployment premium tax rate that employers pay, saving Idaho employers $115 million over the next three years. The bill now moves to the House side; you can read my full story here at spokesman.com.

The change, proposed by Gov. Butch Otter, heads off what otherwise would have been an automatic rate increase, as the unemployment trust fund’s multiplier was scheduled to rise from the current 1.4 percent to 1.5 percent on Jan. 1, 2018. That means the fund, based on a 20-year rolling average and several other factors, would be targeted at 1.5 times what’s needed to weather a deep recession. The bill instead sets it at 1.3 percent.

It comes at a time when Idaho’s unemployment insurance trust fund has grown to $700 million, and is projected, without the cut, to rise to more than $1 billion by the end of calendar year 2020.

“Frankly, that’s more than we need,” Mark Warbis, communications director and Department of Labor liaison for the governor, told the Senate Commerce Committee at a hearing on Tuesday. “With this change, employers will keep more of their money and the fund will still reach nearly $900 million in that time. … Simply put, Idaho’s trust fund is at a strong and sustainable level. Even with this change, we will be well-positioned to weather another downturn.”

Sen. Todd Lakey, R-Nampa, the bill’s Senate sponsor, told the Senate, “It still puts us as one of the most healthy balances in the trust fund in the nation.”

Sen. Grant Burgoyne, D-Boise, said he approached the idea “pretty skeptically,” given Idaho’s past experience with unemployment tax rate cuts. After the 1983 recession, Idaho had to raise rates and cut benefits to keep the fund from going bankrupt. Once it recovered, the Legislature repeatedly cut rates, as the trust fund balance grew. The fund had a $300 million balance going into the recession that peaked in 2009; it went broke, and Idaho had to borrow $202 million from the federal government, with interest, to keep paying unemployment claims.

“That’s an unpleasant experience,” Burgoyne said. “But I did some checking, and I found that the 1.3 would have carried us through the last recession.”

He said, “We should not be inhibiting economic growth and the hiring of workers by keeping the payroll premium rate higher than it needs to be.”

The amount that each employer pays depends on that company’s rate class, which is based on claims history. But most Idaho employers would see a 30 percent cut in their unemployment insurance payments.

In the first year – 2018 – the change would save Idaho employers $46 million. It wouldn’t affect the state’s general fund.

Sen. Jim Rice, R-Caldwell, cast the only “no” vote against the bill. “I would support this bill if it were a House bill,” he said. But because the measure started in the Senate, Rice said he thought it violated the Idaho Constitution, which says, “Bills for raising revenue shall originate in the House of Representatives.”

Senate Majority Leader Bart Davis, R-Idaho Falls, who like Rice is an attorney, disagreed. “This is actually a premium rate bill, not a tax bill,” he said, “and for that reason I’ll be supporting it.”

Lakey and Burgoyne also are attorneys; they agreed with Davis on that point.

Lakey said after the borrowing debacle, “The Legislature did a good job … in building a healthy trust fund,” in part by setting up a complicated formula based on an algorithm that takes into account numerous variables, including the current year fund balance, prior year total wages, liabilities and more, to make periodic self-correcting adjustments to rates. “This is the stuff that actuaries love,” Lakey told the Senate. “I’m not an actuary, but I like the result of the algorithm.”

Warbis said, “It’s our hope that the savings Idaho employers realize will be used for higher wages, growing their businesses or putting more workers on the job. But in any event, we believe that this is good public policy.”

The bill still needs House passage and the governor’s signature to become law, and Idaho lawmakers are pushing to adjourn their annual session this week. But the bill, which Otter has been promoting since the session started, is moving quickly – it was just introduced on Monday, heard in committee on Tuesday and passed in the full Senate on Wednesday.

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