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Office of Sen.

Mike Johnston
Colorado General Assembly | 200 E. Colfax Avenue | Denver, CO 80203 | 303.866.4864

Fact Sheet Memorandum


HB 12-1127 Unemployment Insurance Rate Reduction New Employers Rep. Liston & Sen. Williams Staff Name: Riki Parikh What the Bill Does: Unemployment insurance (UI) benefits for the first 26 weeks of unemployment are paid from the UI Trust Fund, which is funded through premiums and surcharges paid by Colorado employers. The rate paid by employers is determined by a rating assigned by the Colorado Department of Labor & Employments Division of Unemployment Insurance. In January 2010, the Trust Fund became insolvent due to the high unemployment rate during the recession. HB 11-1288, signed into law last year, created a new premium rate schedule that becomes effective once the Trust Fund becomes solvent. Under the current law, premium rates for new employers will range from 2.96 percent to 4.65 percent of the first $11,000 of an employees wages. The exact rate depends on the reserve ratio of the Trust Fund, with a lower rate applied when the funds reserves are higher and a higher rate when the funds reserves or low or insolvent. The Trust Fund is forecast to be solvent with a small reserve ratio on June 30, 2012.1 If this does occur, under current law, employers will begin paying increased rates beginning January 1, 2013. HB 12-1127 reduces the rate for new employers to a default rate of 1.7 percent. Before the new schedule takes effect, new employers are charged a 1.7 percent rate unless they have benefits charged against them from involvement in an earlier business entity. In this situation, they are charged a computed rate that takes those charges into account. Colorado Context: In order to meet its UI benefit payment obligations after the UI Trust Fund became insolvent, Colorado began borrowing from the federal Unemployment Trust fund.2 As of Feb. 15, 2012, the state has over $382 million in outstanding federal loans.3 Under federal law, these loans must be fully repaid by November 10, 2012.
1

Colorado Legislative Council, Focus Colorado: Economic and Revenue Forecast 26, Dec. 2011, available at http://www.colorado.gov/cs/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs& blobwhere=1251760249133&ssbinary=true. 2 Kate Watkins, Memo on Unemployment Insurance Program Funding Structure (May 16, 2011). 3 Unemployment Insurance: State Trust Fund Loans, National Council of State Legislatures (Feb. 17, 2012), http://www.ncsl.org/issues-research/labor/state-unemployment-trust-fund-loans.aspx

DRAFT 12/13/2011 10:03 AM

For a complete list of fact sheets, visit www.mikejohnston.org/in-thelegislature.

House Bill 11-1288 was passed during the 2011 legislative session to bring the UITF into solvency sooner, to maintain a healthier fund balance, and to avoid higher assessment rates during future economic downturns. Among its provisions, the bill created a new rate schedule for employers to be implemented when the fund became solvent. The rate schedule prior to HB 11-1288 maintained a flat 1.7 percent rate for new employers as an incentive to new business. The new schedules under HB 11-1288 did not maintain that rate. HB 12-1127 fixes that error and reinstates the lower rate for new employers. In December 2011, the Colorado Legislative Council forecast that the UI Trust Fund is expected to have a positive fund balance of $59.6 million at the close of this fiscal year on June 30, 2012, and $248 million at the end of FY 2012-13.4 National Context: State governments levy payroll taxes on employers to pay for unemployment insurance benefits. These taxes, calculated on state financing formulas and an employers history of claims, are deposited into the Federal Unemployment Trust Fund. Each state has its own account within the Trust Fund. Colorado is currently one of only 27 states borrowing from the Federal Unemployment Account, which provides loans for state unemployment programs to ensure a continued flow of benefits during times of economic downturn. It is the only state in the Tenth Circuit that is borrowing.5 Bill Provisions: The bill replaces the current Standard Premium Rate Schedule with a new schedule that notes a flat rate of 1.7 percent for unrated employers (new employers). Fiscal Impact: The Colorado Legislative Council estimates this bill will reduce revenue to the UI Trust Fund by $8.3 million in FY 2012-13, $13.5 million in FY 2013-14 and $14.8 million in FY 2014-15. Under the current law, new employers would be charged a rate of 4.34 percent beginning January 1, 2013, bringing in revenue of $13.6 million for FY 2012-13. Under this bill new employers will pay a rate of 1.7 percent for total revenue of $5.3 million in FY 2012-13.6 Despite the revenue reduction, the lower rate for new employers will not jeopardize the solvency of the fund.

4 5

Conversation with Clare Pramuk, Colorado Legislative Services, Feb. 22, 2012. 2012 State Trust Fund Balances, National Council of State Legislatures (Feb.17, 2012), http://www.ncsl.org/issuesresearch/labor/trust-fund-balances-2012.aspx. 6 Clare Pramuk, Fiscal Note: HB 12-1127, Jan. 30, 2012, http://www.leg.state.co.us/clics/clics2012a/csl.nsf/fsbillcont3/A123314436CE86FB87257981007F37E2?Open&file=HB1127_00. pdf.

DRAFT 12/13/2011 10:03 AM

For a complete list of fact sheets, visit www.mikejohnston.org/in-thelegislature.