Colorado lawmakers are planning to introduce a bill as soon as this week that would overhaul the state’s unemployment system and also send roughly $600 million to the depleted unemployment insurance trust fund to lower a $1 billion federal debt hanging over employers.
The $600 million replenishment was expected — Gov. Jared Polis made the recommendation in November — but the changes to the unemployment system are a surprise that comes after months of behind-the-scenes negotiations between lawmakers, Polis’ office, the business community and progressive fiscal groups.
Many of the systemic changes proposed in the forthcoming bill are extensions of temporary changes made during the pandemic. Some details are still being negotiated, but the alterations are slated to include continuing a COVID-era fund offering unemployment benefits to people living in the U.S. illegally who aren’t eligible for aid under federal law, as well as making permanent a change allowing people to collect more benefits even if they secure part-time work.
“We have a number of provisions that were put in on a temporary basis during the pandemic that have worked really well for the state and have helped families get back on their feet,” said state Sen. Chris Hansen, a Denver Democrat who will be a prime sponsor of the bill. “We think it’s a good idea to make many of them ongoing.”
Hansen said the legislation is expected to have bipartisan support in both the House and Senate, though Republican sponsors in both chambers haven’t been finalized.
While Republicans have called for eliminating the full $1 billion debt owed to the federal government by the trust fund, the business community appears happy with where the legislation is headed.
“The $600 million is a huge win for employers across the state,” said Loren Furman, president of the Colorado Chamber of Commerce.
Employers, who are solely responsible for filling the trust fund, are paying more this year in unemployment insurance premiums. But they face even higher payments in 2023 because of the deficit, caused by the federal government keeping Colorado afloat during the pandemic. Insolvency surcharges won’t stop until the trust fund fills its $1 billion hole. To get the fund fully solvent, it needs $2 billion to $2.5 billion, according to Colorado Department of Labor and Employment officials.
Furman said that without the $600 million replenishment, businesses will face higher costs because of solvency surcharges and that’s not fair because they kept their businesses going through the pandemic. Companies that shut down no longer contribute, even as their workers benefited from the trust fund.
Progressive organizations also say they and labor groups are pleased with the upcoming legislation.
“What we’re doing with this bill is just making sure that we are as prepared for the next recession as we can be,” said Kathy White, executive director of the liberal-leaning Colorado Fiscal Institute. “That includes forward funding (the trust fund) to accelerate solvency and preserving some of the policy changes that were made during the pandemic that are really targeted at making sure the program works for workers and it works for the lowest wage workers. That’s where we saw the greatest gaps.”
What made it into the bill
The bill’s proposed changes to the unemployment system are meant to continue what state and federal lawmakers started during the pandemic. They are designed to help low-wage unemployed workers survive in a future recession.
“One of the things that we really learned through the pandemic is that the unemployment insurance system is literally the only and first line of defense that the United States has to manage recessions, to keep the economy basically from tanking and going into a vicious spiral as jobs are lost,” White said. “During the pandemic, there was a recognition by the Trump administration first and the Biden administration second … that there are just certain gaps in how well the UI system works for workers, even though it’s the most critical system we have. It’s an automatic stabilizer.”
There are three key changes set to be included in the forthcoming legislation:
- Colorado lawmakers created the Left Behind Worker Fund during the pandemic to provide financial help to workers living in the U.S. unlawfully who lost their job because of COVID-19. The bill would make the fund permanent and change the name to the Benefit Recovery Fund. The goal is to help immigrants whose employers already pay their unemployment insurance but who are ineligible to receive unemployment benefits because of federal laws. The fund would not raise unemployment premiums and it would be capped.
- Currently, Coloradans receive 55% of their regular pay as unemployment. But if they work part time and earn 25% or more of the weekly benefit, that benefit starts to diminish. That provision hurt employers who had to reduce their operating hours in the pandemic because it meant their employees could make more by not working. The legislation would raise the partial UI limit to 50% before the worker sees any reduction in their benefits.
- Employers would be required under the bill to inform their workers that they are eligible for unemployment benefits.
Three other proposed changes to the unemployment system under the legislation are still being negotiated. They would:
- Eliminate the one-week waiting period between when a worker loses their job and their unemployment benefits start. White said the thinking behind this change is that low-wage earners need the money as soon as possible. The one-week delay was waived during the pandemic.
- Waive a requirement that unemployed workers repay unemployment overpayments. During the pandemic, an executive order required the state labor department to pay benefits first and then check on eligibility. Because of that mandate, thousands of unemployed workers later deemed ineligible were overpaid benefits and then required to pay them back. Many had already spent the money so it became a frustrating mess.
- Create dependent allowances by offering unemployed primary caretakers $25 per week per dependent. This stands to benefit single parents or a parent who is the family’s sole income provider. This won’t be part of the proposed bill. Instead, a committee will be created to study the proposal.
The idea behind the $25 per dependent comes from the federal $600 per-week pandemic unemployment supplement from Congress, which helped many workers stay afloat even as it was criticized for helping the lowest earners make more by staying jobless, White said.
Furman said the chamber and Colorado businesses have been working on the bill with state legislators and organizations like the Colorado Fiscal Institute since January.
“We want to make sure that these proposals don’t take money out of the fund at the most vulnerable time,” Furman said. “So some of the provisions we’re going to do through a study, some of them might get pushed up until the fund is at a billion-dollar threshold. It’s just about putting some guardrails around them.”
In a statement, Polis’ office thanked business leaders and bill sponsors who are following up on his original proposal to use $600 million to pare down the trust fund deficit. The office didn’t comment on proposed changes to the unemployment system.
“We appreciate the work of the sponsors, business and workers’ advocates to move forward with a proposal that fully funds the governor’s budget request,” the statement said.
How $600 million will help insolvency issues
Colorado’s unemployment insurance trust fund ran out of money in August 2020, five months into the pandemic. But unemployed workers still got paid, thanks to the state getting a loan from the federal government.
That loan swelled to $1 billion by April 2021.
Even as workers returned to their jobs and employers paid premiums to the trust fund, the federal loan was still more than $1 billion as of April 15, according to the U.S. Department of Treasury.
Colorado employers are on the hook for repaying the loan through additional fees. Annual unemployment insurance premiums increased in January because the trust fund was empty on June 30, the date of the annual health checkup. By state statute, that alone means Colorado employers shift to a higher rate. Colorado employers are now paying the highest rate possible (see the far right-column in this rate schedule).
Next year, employers will see their costs rise because of the new trust fund solvency surcharge and the loss of the Federal Unemployment Tax Act credit.
The proposed bill would address both. By shoring up the trust fund with $600 million, employers could see the solvency surcharge stop in 2026 in the best-case scenario of a strong economy. With no government help and a weak economy, the surcharge could continue to 2028.
The proposed $600 million would come from Colorado’s share of federal pandemic relief through Congress’ American Rescue Plan Act. At least 16 other states have used American Rescue Plan Act money to replenish some or all of their depleted trust funds, according to the Economic Policy Institute.
Texas repaid its entire unemployment debt using federal money. Some Republicans in the Colorado legislature have unsuccessfully advocated for doing the same.
The Colorado labor department said using the money to pay the federal loan to avoid the additional interest is the “best use of $600 million of ARPA,” said Daniel Chase, the state labor department’s chief of staff.
“Our current plan would be to use about $580 million to pay down the loan balance upon receipt of the money, then hold the remaining amount to pay off the interest owed in September, which we estimate to be between $15 million and $20 million,” Chase said.
Federal law doesn’t allow states to use employer premiums to cover interest payments, so if Colorado didn’t set aside the $20 million balance for interest, the state would have to find other alternatives, he said.
But Chase doesn’t think Colorado will try to pay off the rest of its federal debt the same way it did after the Great Recession. Back then, Colorado’s federal unemployment loan ballooned to $578.2 million by March 2011, according to a U.S. Government Accountability Office report. Surcharges kicked in and some Colorado employers said their premiums tripled. The business community backed an effort for the state to issue a bond to finance the debt and reduce their fees. The bond was paid off in May 2017.
Colorado’s economy has recovered much more quickly than it did after the Great Recession. As of February, the state had recovered all of the 375,400 jobs lost in the first two months of the pandemic. That’s why a bond may not be necessary, as employers are back to paying insurance premiums.
Nevertheless, the state labor department has bonding authority if needed. But it’s through the Colorado Housing and Finance Authority, which was used during the Great Recession. CHFA no longer bonds for state agencies. So state lawmakers must transfer the labor department’s bonding authority to the treasurer’s office, which is also in the proposed bill.
“While we don’t anticipate the need to bond to the degree of the Great Recession, we do want to enhance our tools available should we be close to paying off the debt at key points in the next year,” Chase said.
If the trust fund balance is positive on June 30 and the loan is paid off, employers can move to a lower premium rate in 2023. Even if the state misses the date but pays off the loan by Nov. 10, the state avoids a FUTA credit reduction. But there are some models that show the state’s loan balance could still be $100 million.
“In that case,” Chase said, “bonding could be a financially viable option to hit that timeline.”