Legislators dedicating portion of unemployment-tax revenues to new workforce enterprise

Colorado state Reps. Shannon Bird and Emily Sirota explain to the House their bill to create a Workforce Development Enterprise.

One year after members of the Joint Budget Committee stepped in to stop unemployment-tax revenue from being used to fund enforcement of labor regulations, leaders of that committee are advancing a bill that largely could end similar future diversion attempts.

House Bill 1409, which is part of the larger 2024-25 budget package that passed the Colorado House on Monday, creates a new enterprise in the Colorado Department of Labor and Employment that funds workforce-development centers across the state. The bill doesn’t put new money to the centers but instead creates a secure pot of funding for them — amounting to $6.8 million in the fiscal year that begins on July 1 and rising by the cost of inflation in each subsequent year.

Employers pay a tax, based on the size of their workforce and the history of their layoffs, that funds the Unemployment Insurance Trust Fund, the mechanism by which the state provides partial payments to workers laid off through no fault of their own. They also pay a surcharge that goes to a tech fund supporting employment and training automation initiatives, to a benefit recovery fund through which a third-party administrator provides recovery benefits to eligible individuals and to the Employment Support Fund.

How the ESF works

The Employment Support Fund, which now receives nearly 60% of surcharge revenue, traditionally has gone to local workforce-training centers and to state employment and training programs. But a 2001 law permitted it to pay for enforcement of labor-standards and labor-enforcement laws as well — a clause that rarely was used until last year, when a half-dozen bills proposing to create new regulations sought to tap into it for funding.

CDLE Executive Director Joe Barela pushed back, saying that the money always had gone to workforce-training programs and that those programs needed state help in the wake of the pandemic disruption of several industries that spurred massive job changes. JBC members struck such funding for the proposed regulations last year, but HB 1409 could serve as a de facto ban on such uses in the future because of the ways it would change distribution of surcharge revenue.

First, it would cap the amount of revenue going to the ESF at $7 million per year — way down from its current $32.5 million annual cap — and leave little room for legislators to take that money to fund proposed new bills. It also would cap the surcharge revenue that can go into all designated funds at $42 million, down from $78.5 million, and would send any revenues above that total into the UITF, which remains actuarially insolvent after going broke in 2020 and requiring federal loans.

Boosting the reserves in the UITF is crucial because employers this year began paying a second surcharge — known as a solvency surcharge — and will continue doing so until there is more than $1 billion in reserve. Barela told the JBC in December that the UITF would end 2023 with about $265 million in reserve, and officials have said they expect that surcharge to remain in place likely into 2026.

How the new unemployment-tax-funded enterprise would work

Maybe the biggest change that could come from HB 1409, however, is the creation of the Workforce Development Enterprise, which would get 14% of the money available under the surcharge revenue cap and put it to workforce-development services and centers. The existing 57 employees of these programs and centers would be funded from this total, and the dedicated fund would ensure a steady flow of money to the centers, untouchable by legislators for other purposes.

Rep. Shannon Bird, the JBC chairwoman and Westminster Democrat who is cosponsoring HB 1409 with Democratic Rep. Emily Sirota of Denver, said Thursday during House debate on the bill that such limitations on other uses of the surcharge will help UITF solvency. And just as importantly, it will create a protected source of funding for workforce centers in Colorado at a time when state leaders are working to prepare students and upskilling workers better with the talents needed by employers in an evolving economy.

“We know that workforce centers create a healthy labor force and a higher labor employment rate,” Bird said. “Businesses and employers who pay the support surcharge will directly benefit from the creation of the Workforce Development Enterprise.”

TABOR impact divides legislators

House members approved HB 1409 on a largely partisan 47-17 vote Monday, with only GOP Rep. Rick Taggart of Grand Junction, the lone House Republican on the JBC, joining with Democrats to pass the bill. The split closely mirrored the largely partisan margin by which the $40.6 billion budget bill passed, but it wasn’t the dedication of money for workforce centers that seemed to bother Republicans.

Rather, it was the fact that moving some $49.5 million more to the UITF, the Tech Fund and the Workforce Development Enterprise will move that money out from under the Taxpayer’s Bill of Rights revenue cap into TABOR-exempt enterprises — and lower taxpayer refunds by that same amount. During the Dec. 7 JBC hearing for CDLE, Sen. Barbara Kirkmeyer, R-Brighton, stated she was bothered by the reduction in TABOR refunds resulting from the move, and similar concerns over state spending have fueled GOP opposition to the budget.

But CDLE leaders have been resolute that they want to put the money aside to benefit employers who pay the surcharge and to help the workers designed to benefit from a primary program — training — that’s long been funded by the surcharge. Business leaders who were briefed on the concept by CDLE at a Jan. 17 Colorado Chamber of Commerce Labor & Employment Council meeting also supported the idea, which now heads to the Senate with a strong likelihood of landing on the desk of Gov. Jared Polis.

Benefits of a fund for part of the unemployment-tax revenues

The bill itself lays out authors’ main argument, reading:

“Providing workforce development services benefits employers throughout Colorado by:

  • Helping Colorado workers more quickly gain employment, thereby reducing their need for unemployment benefits and keeping employers’ unemployment premiums lower;
  • Developing a more qualified workforce that can better meet the needs of Colorado’s businesses;
  • Connecting Colorado employers with potential employees; and,
  • Maintaining employers’ customer bases by keeping the greatest number of people steadily employed and able to purchase goods and services.”

HB 1409 and the full budget package are scheduled for debate this week in the Senate.