By Gene Meyer
TOPEKA — Two years ago, Bill Goodlatte’s company paid Kansas $19,344 to cover unemployment insurance for about 600 crew members, restaurant managers and other workers in 20 Wichita area Wendy’s restaurants it runs.
The franchiser’s tab for the same state-required coverage jumped to $53,338 in 2010, and again to $102,990 this year.
“And we’ve never had a layoff,” said Goodlatte, senior vice president for human resources at LDF Cos. in Wichita, which owns the franchises. “This makes absolutely no sense.”
He and nearly 73,000 other business owners and executives statewide worry about what their next bills might be in December when the Kansas Department of Labor sends out tax bills for 2012.
That’s when Kansas is scheduled to tack on additional taxes, technically called unemployment insurance premiums, to begin repaying the federal government an expected $300 million or more the state is expected to borrow to cover unemployment benefits for more than 104,000 unemployed Kansans.
The first payment on that debt will be due Friday, when Labor Department officials must come up with $4.6 million to pay just the interest accrued on nearly $171 million borrowed last year to pay promised jobless benefits.
Federal law requires states to pay the benefits even if the state trust funds are empty. So when persistently high unemployment depleted what since 1990 had been a historically comfy $400 million or higher trust fund, Kansas joined more than 30 other states in tapping federal loans. The loans were interest free until Jan. 1.
“It will be the first time ever, since the federal program was created in 1937, that we’ve had to pay interest on a federal loan,” said Kathie Sparks, a deputy state labor secretary.
Federal law bans using unemployment insurance taxes, technically called premiums, to pay interest on the federal loans. Kansas is getting around that by borrowing the money from the state’s Pooled Money Investment Board, an arm of the state treasurer’s office that manages about $3 billion a year in tax receipts and other state funds between when those are collected and when they are spent.
It isn’t clear when any state agency tapped the investment board for a similar loan.
“They are very rare,” said Scott Miller, the board’s chief investment officer. “This one was specifically authorized by the state Legislature.”
Refinancing the federal loan through the Investment Board will cut interest costs almost in half for the state Labor Department, state Labor Secretary Karin Brownlee told KansasReporter.org in April.
Kansas business owners say they are more alarmed by the much larger loan principle they will need to repay, presumably through higher unemployment premiums.
Kansas’ total unemployment benefits debt is officially $170.8 million, which the state borrowed as of Jan. 1, when the interest rates kicked in. Some back-of-the-envelope calculations based on hiring patterns since then put the current total around $183 million, said Phil Hayes, vice president for Human Resources Services and Operations at The Arnold Group, a Wichita employment services and consulting firm.
“Projections are that the state will borrow another $46 million in 2012, and $80 million in 2013,” Hayes said.
Kansas employers pay their shares of unemployment taxes according to where they fall in among more than 50 specific insurance rate classes, which are based on the number of unemployment claims their workers file after leaving the job.
Theoretically, companies that pay more in unemployment taxes than their former workers collect in claims pay low rates, while other businesses, where dismissed workers collect far more benefits than their employers paid in premiums, pay high rates.
What’s happening instead is that “all the employers with positive records are paying maxed out rates,” Hayes said.
“There’s no reward for reducing your unemployment benefits costs even further,” he said.
“It’s frustrating,” said Tom Casey, manager of Express Well Service and Supply Inc. in Hays, which provides service and equipment to the state’s oil and gas industry.
“I’ve had one or two rigs shut down all year, because I can’t get help to run them.” Casey said. “Yet the state wants me to pay more unemployment tax, and increase my business costs, instead of using the money to hire help I need.
“I don’t know how the new ramifications are going to work out, but it is not going to be good,” Casey said.
Goodlatte’s Wendy’s restaurants, since they’ve opened, collectively have paid nearly $1.2 million into the system, while former workers there have collected about $353,000 during the enterprises’ business lifetime, Goodlatte said.
“We have a positive balance of $824,822, and our rates keep going up,” he said. “It makes no sense.”
At a minimum, “the rising costs make employers very wary of hiring,” said Susan Smith, a senior vice president at GLMV Architecture Inc. in Wichita, which provides architectural, interior design, planning and related services.
“If you make an unfortunate hire and are forced to let him go, you may be paying for that mistake for years,” Smith said.
Employers prepare for higher unemployment insurance premiums
By Gene Meyer