Oregon’s Unemployment Fund relatively healthy, but Oregon employers pay a premium for it

The Oregon Employment Department has just announced that Oregon employers will see their Unemployment Insurance (UI) taxes rise in 2010 to an average rate of 2.76% of the first $32,100 in wages paid to each employee.  This is a significant increase from the 1.97% of payroll that is being charged for 2009.  The tax rate for new employers will also increase – from 2.4% to 3.1%.  

Oregon’s UI Trust Fund is unique in that it is designed to be self-balancing.  Oregon uses eight tax schedules to annually adjust employer rates based on the solvency of the trust fund.  In 2009, Oregon employers were paying relatively low rates (Schedule 3).  However, due to record levels of utilization of unemployment benefits which have depleted the trust fund, employers will now be paying tax rates from Schedule 6.  Tax rates in Schedule 6 range from 1.8% to 5.4%.

Is Oregon’s UI Fund still solvent?  Yes.  Like most other states, Oregon’s fund has been battered by the economic downturn.  For calendar year 2009, over $2.2 billion in UI benefits have been paid to over 175,000 unemployed Oregonians.  Because a record number of Oregonians have drawn benefits this year, Oregon’s UI Trust Fund balance has decreased from $2.1 billion to nearly $1.2 billion.  But unlike most other states, Oregon’s fund is designed to self-adjust, which is why employer tax rates are scheduled to increase in 2010 and 2011.

How does Oregon compare to other states’ UI funds?  Very favorably, but with significant cost.  Already, 25 states have insolvent UI Trust Funds, including California, Nevada and Idaho.  These 25 states, to date, have borrowed $165 billion in order to meet current benefit payment demands.  The US Department of Labor predicts that as many as 40 state funds are expected to be insolvent by 2012.  Although Oregon will be among the few states with solvent UI Trust Funds, it is only because employers will be paying significantly higher UI tax rates for next several years.

What is AOI doing to help employers?  Two things.  First, AOI has successfully managed legislation that keeps unemployment benefits costs from becoming unaffordable.  For example, AOI defeated two significant cost-driving proposals from the Oregon legislature that would have extended UI benefits to part time workers and added extra benefit payments for claimants with dependents.  Although these types of proposals are well-intentioned, they are also significant factors in the insolvency of other state funds.

But just as important, AOI is teaming with important allies, including some friends in organized labor, to safeguard the integrity of Oregon’s UI Trust Fund.  We do this by opposing “diversions” from the fund – taking money from the fund to pay for unrelated programs.  AOI believes that the UI fund exists for only one purpose: to pay benefits to those who lose their job through no fault of their own.  Maximizing the intended use of employer-paid UI funds is AOI’s top priority.