Help wanted signs in the windows of businesses in Crested Butte, Colorado on Saturday August 14, 2021. Because there is little affordable housing available to the workforce in Crested Butte, Colorado and other ski towns throughout the state, there is a shortage of workers. If you have housing you can find as many jobs as you like. If you don't have housing there is no work. The shortage has caused some restaurants to close and others to limit the days and hours they are open. Nearly every store along Elk Avenue, Crested Butte's mainstreet, has a help wanted sign in the window and nearly all are dependent upon highschool and college kids for work. (Dean Krakel, Special to The Colorado Sun)

Colorado has paid back 87% of the $1 billion it borrowed from the federal government to provide out-of-work Coloradans unemployment benefits during the pandemic. As of this week, the outstanding balance was $133.1 million.

There’s still a way to go to get the depleted unemployment insurance trust fund healthy again. But with Colorado’s strong job recovery in the past year, the state is on track to pay off the loan by Nov. 10, in time to eliminate a higher federal tax that would start for employers in January, according to the Colorado Department of Labor and Employment.

Ryan Gedney, a senior economist at the labor department, credited federal pandemic aid that reduced the loan by more than half in recent months. But that wasn’t the only reason, he said. With more people returning to work and fewer collecting unemployment, more money is going into the unemployment trust fund than leaving it. 

“A stronger-than-expected economic recovery also aided in relative improvement in the UI trust fund, mainly due to a steep decline in benefit payments,” Gedney said. 

The state paid weekly relief to a record number of people who lost their jobs due to pandemic disruptions that started in March 2020. More than $3.5 billion in regular unemployment benefits was paid to out-of-work Coloradans in the following two years.

Colorado used $600 million from its share of the American Rescue Plan Act, which nearly two dozen states also tapped to pay off their federal unemployment loans, according to the National Conference of State Legislatures. Of the $600 million, Colorado used $580 million to pay down the loan, saving $20 million to pay interest later. The trust fund is only allowed to fees, like loan interest.

Other states, including Ohio and Georgia, used much more of their ARPA allotment to eliminate their entire loan. Texas used $7.2 billion to pay off its loan and replenish its trust fund.

That’s what Colorado should have done, said Doug Holmes, president of UWC Strategic Services, a Washington, D.C.-based organization that advises businesses on unemployment and workers’ compensation issues. 

“The reason for the insolvency in large part was due to government-mandated shutdowns in light of the pandemic,” Holmes said. “There should therefore be a recognition of the need to restore balances prior to the mandated shutdowns. Employers did not cause the insolvency.”

If more states had used the federal help to build back their trust fund, the states would be better prepared for the next recession, he said.

Since the Treasury allowed states to use ARPA funding to pay off the loans and refill their trust funds, “We recommended it to everybody,” Holmes said.

Two big financial holes for employers

Paying off the loan is one financial chore for Colorado. The other is replenishing the trust fund, which had $1.1 billion before COVID-19 struck. The fund was wiped out within five months. Without outside help, employers will shoulder the financial burden, which has grown since the pandemic. According to the state labor department, 203,000 employers paid for unemployment insurance for their staff in the fourth quarter of 2021. That’s up 11% from the 183,000 employers contributing in the fourth quarter of 2019.  

The trust fund is supposed to be large enough to cover workers who lose their jobs during an economic downturn. When it’s not solvent — it hasn’t been solvent since August-2020 — a surcharge turns on and employers must contribute additional money for every worker. 

To assist employers, the state legislature passed laws in 2020 and 2022 to stop the surcharge through 2023. But if the trust fund doesn’t get to an estimated $1.2 billion by the end of the fiscal year, or June 30, the surcharge will resume Jan. 1,  2024. — unless it’s paused again. And the following year, the trust fund needs to be at $1.3 billion by June 30.

Gedney doesn’t think Colorado will meet those minimums in time.

“Even based on a strong growth forecast, the trust fund balance would be below $1.2 billion for both of those periods, thus I anticipate the solvency surcharge would be in effect for 2024 and 2025,” he said. “However, it’s possible the solvency surcharge is turned off again through future legislative action.” 

But based on assumptions about the economy and labor market growth and even another possible recession, the fund could reach $2 billion anytime from 2025 to 2028. Doing so would keep future solvency surcharges at bay and better prepare the state for another recession.

2023 increases for employers
⏺ No change in rates since they’re already at the highest level
⏺ Taxable wage base increases to $20,400 per worker. That means employers must pay insurance on a worker’s first $20,400 of pay, up from $17,000 in 2022.
⏺ No UI trust fund solvency surcharge because SB 234 stopped it for one year 
⏺ No change in the Federal Unemployment Tax Act if federal loan is repaid by November 10. If it’s not repaid, employers will start paying $63 in FUTA per employee per year, instead of $42.

The state stopped borrowing federal money last year because there’s enough money coming in to cover Coloradans on unemployment. That number has been in decline from last year. And based on current forecasts, there will be enough additional revenues in the trust fund to make the Nov. 10 repayment deadline. 

But if the state leaves even a dollar on the outstanding loan on Nov. 10, employer taxes will rise.   That’s because failure to pay off the loan would cause a reduction in a tax credit known as FUTA, for the Federal Unemployment Tax Act that created it. 

Instead of paying 0.6% on the first $7,000 of an employee’s wage, the employer will pay 0.9% to the IRS. That increases the tax by 50%, resulting in payments of $63 per employee instead of today’s $42 per worker.

“Avoiding a FUTA credit reduction would save Colorado employers around $50 million in potential additional costs,” Gedney said. 

States that didn’t pay off their entire loan using federal aid should have made sure that enough of the loan was paid off to avoid losing any of the FUTA credit in November, said Holmes, with UWC Strategic Services. 

That tax burden, Holmes said, “should be avoided particularly when employers are recovering from a recession. Increased taxes impose increased costs of hiring and make it more difficult for employers to rehire or hire new employees.”

The local chapter of NFIB, an organization representing small businesses and a client of UWC, lobbied state lawmakers last spring to use ARPA funds to pay off the loan. Businesses are already paying more on insurance premiums after another law kicked in to raise the base wage used to calculate premiums. But many companies have essentially moved on, said Tony Gagliardi, NFIB’s state director for Colorado. 

“My members are busy running their business,” Gagliardi said. “While this topic comes up for discussion, they’re not dwelling on it because (they’re) making sure they can keep the business staffed. I don’t know how many restaurants I’ve been into in recent months where many tables are pushed to the side because they don’t have enough servers. Or they’ve gone to takeout only. I’ve never seen anything like this in my life where there’s placards on the doors advising customers they have an employee shortage, please be patient.”