Unemployment taxes could fund new labor regulations

The Colorado Capitol

Colorado legislators are seeking to use a fund that is seeded by unemployment-tax payments from employers to pay for enforcement of several regulatory bills this year — efforts that come as the Unemployment Insurance Trust Fund continues to be insolvent.

Legislators created the Employment Support Fund in 1990 to help pay for administration of the unemployment-insurance program and to support programs that strengthen the solvency of the UITF, which officials have interpreted as programs that get more people into jobs. A 2001 state law then specified that the ESF also could go toward labor standards, labor relations and the Colorado works grievance procedure.

Funding bills, particularly those dealing with labor standards, via the ESF, has not been common, with only five laws passed in the past seven sessions getting such a boost. But it’s become a more common tactic this year, as six different bills have sought to tap into the fund to help pay for new laws, including the recently killed Fair Workweek proposal.

And it’s a tactic that worries Joe Barela, executive director of the Colorado Department of Labor and Employment, which oversees the ESF and the UITF. The proposals divert money from the UITF as the state continues to repay federal loans to refill an unemployment fund that went broke amid a crush of coronavirus job losses in 2020 and from the ESF, which local workforce-development agencies have relied on for job-training aid.

“I would be interested in having a conversation with anyone who would ask ‘How can Colorado be efficient with our unemployment-insurance system and how can we work with local communities to help them fund their local training?” Barela said in an interview. “I do think that they have good intentions. But at this point, it’s robbing Peter to pay Paul because we are still borrowing from the federal government.”

Employment Support Fund history

Employers pay unemployment taxes based on the number of workers they have and their experience with layoffs, and the first .00145% of their payments go into the ESF. That generates some $40 million per year, which helps to pay for administration expenses at CDLE, Division of Unemployment Insurance program costs, some $13 million in local workforce-development grants and $3 million in labor-standards enforcement, CDLE chief of staff Daniel Chase said.

CDLE is working with legislators to introduce a bill this year to tweak how it moves money into the ESF, in order to conform the program more closely with federal law, and to cap the amount of money in the fund at $32.5 million. With a 2020 law increasing the base wage rate on which unemployment taxes are collected from companies, the fund could grow to $90 million in the next five years, and Chase said CDLE wants to move everything above the proposed new cap back into the UITF to help its solvency.

First, though, the ESF is being eyed as a potential source to pay for enforcement of numerous bills during a year in which available budget funds for new programs are expected to be minimal and Gov. Jared Polis has warned legislators to limit their spending on such programs. Fiscal notes have identified six proposals so far that could dip into the fund, even as CDLE opposes the transfers:

• Senate Bill 105, which would add more requirements to the two-year-old Equal Pay for Equal Work Act, would use $771,666 from the ESF to help pay for 6.5 full-time employee equivalents (FTEs). Of that, $95,166 would be reappropriated to the Department of Law for legal services.
• House Bill 1078, which would create a $35 weekly payment for the dependents of individuals receiving unemployment benefits, is poised to take $655,530 from the ESF next fiscal year and $1.17 million from it in the 2025-26 fiscal year, when the benefits first become available. It is the one bill in the bunch that is not looking to use the money to enforce a new law so much as use it to set up a new benefit from the UITF and provide that benefit to Coloradans.
• SB 98, which would increase the amount of information that gig-worker companies like Uber and Lyft must provide to drivers regarding their payments, would use $604,426 from the ESF for enforcement, which would fund 5.3 FTEs. Of that, $57,100 would be reappropriated to the Department of Law.
• SB 111, which would grant public-sector workers the right to engage in organizing activities and participate in the political process in off hours, seeks $457,239 from the ESF. That also includes $57,100 reappropriated to the Department of Law.
• HB 1118, the Fair Workweek Act that would have required longer advanced scheduling from employers in the restaurant, retail and food-and-beverage-production sectors, sought $329,383 from the ESF for enforcement. However, that bill died in a House committee last month.
• SB 17, which allows workers to use paid sick leave to deal with the death of family members or to care for children when their school closes temporarily, seeks to use $74,927 from the ESF, which would help to pay for 0.9 FTES for enforcement.

Concern from officials

That is the only bill of the sextet that so far has received approval from an appropriations committee for the ESF distribution.
Jaclyn Terwey, legislative and policy advocate for the Colorado Municipal League, said she’s been surprised to see the ESF recommended to fund a bill like SB 111 when it wasn’t used for past similar bills, such as efforts to give state and county workers collective-bargaining rights. Not only is she bothered that the diversions would occur when the UITF remains insolvent, but she is worried that costs predicted by the fiscal notes are too low, meaning that even more could have to be taken away from other uses of unemployment taxes.

“I think the UI Trust Fund is a big deal as well,” Terwey said. “It’s not solvent at this point, and to be taking money out of it for these things is worrisome.”

Business and workers’ advocacy groups worked with legislators last year to pass a law that injected $600 million into the UITF. But employers still are paying at the highest rate possible to get the fund up to solvency, and they are set to begin paying a special solvency fee next year that is expected to last at least two years until the UITF has about a $1 billion reserve again.

Meanwhile, CDLE continues to borrow from the federal government to prop up the fund. While the state repaid a long-standing U.S. Treasury loan near the end of 2022 with the help of the $600 million injection, it had to borrow money again in January to make it through to April, as the biggest annual surge of money from employers doesn’t come until the end of the first quarter each year, Chase said.

Barela, who spent 25 years working at local workforce-development agencies before Polis tapped him to lead CDLE in 2019, also said he does not want to divert ESF funding from those local grants, particularly at a time when many industries are struggling to find talent. Such money can be used to reskill out-of-work Coloradans quickly for in-demand jobs, and cutting off that revenue flow to local centers will only exacerbate the current labor shortage, he said.

“I get the sense that the budget is going to be tight next year,” Barela said. “I would just like to be cognizant that the intent of this money is to administer the Unemployment Insurance Trust Fund and add to federal funds we bring in. But we also need at this time of worker shortages to make sure we are listening to the businesses and helping them to fill their vacancies.”

Legislators split on issue

Legislators have tapped into the ESF in recent years, but much more sparingly and for lower amounts of funding. While there were two large allocations since 2020 — $457,657 to enforce the agriculture workers’ rights bill that passed in 2021 and $270,153 to enforce the protection of whistleblowers during public-health emergencies — more common was a transfer like the $38,114 that went to help enforce the “Ban the Box” bill in 2019.

Members of the Joint Budget Committee — whose thoughts are outsized on the subject because they chair and advise the appropriations committees in both chambers that will decide whether to permit bill funding to come from the ESF — appear split on the issue.

Rep. Shannon Bird, D-Westminster, said she is “very concerned” with the idea of taking employer-paid premiums and putting them toward bills that may fall outside the defined purpose of the fund. Sen. Barbara Kirkmeyer, R-Brighton, also said during a discussion at the end of Friday’s JBC meeting that most of the bills that are seeking to use the ESF funds would not fit under the definition of workforce development.

Sen. Jeff Bridges, D-Greenwood Village, said, however, that he believes the bills may fit under the allowable uses for the fund, including both workforce development and labor standards. And if that is the case, the ESF may be a good place to go for the money, he added.

“It seems to me that if there is a purpose that fits within the allowable uses without broadening the purpose of the fund, then I don’t think I have a problem with bills being funded from that, because otherwise it goes into the Unemployment Insurance Trust Fund, which is an extremely sort-of-large pile of cash,” Bridges said. “And I don’t think that what we’d be putting in there would make a substantive difference in the balance of the Unemployment Insurance Trust Fund, whereas it could make a real significant impact on either labor standards or workforce development programs.”

Abby Magnus, a legislative budget and fiscal policy analyst with the Joint Budget Committee staff, noted during the hearing that fiscal-note analysts have been talking about how any bill related to labor standards should be funded through the ESF.

But Bird said in an interview after the hearing said that she and others need to scrutinize the proposed uses of the fund and ensure not just that they are valid, but they are the best use of unemployment-tax revenue right now. She said the situation reminded her of what happened a few years ago with the Marijuana Tax Cash Fund, where legislators stretched the definition of allowable uses to the point where the fund started to dry up without being able to go to the purposes for which it was created.

“I think that just because you entitle your bill in a certain way doesn’t mean that it is going to pass muster with how we intend to use the fund,” Bird said. “We need to be thoughtful about what those allowable uses are.”