$300M CARES fund transfer needed to lessen tax increase on businesses

$300M CARES fund transfer needed to lessen tax increase on businesses

By MARY SELL, Alabama Daily News

Alabama state leaders are moving $300 million in federal CARES money to cover some unemployment benefit costs in an effort to avoid a significant increase in the tax paid by employers.

Alabama Daily News first reported Wednesday that changes were planned for the $1.9 billion in federal funds lawmakers and Gov. Kay Ivey allocated to various agencies and groups in May. 

Currently, the state’s unemployment insurance benefits trust fund could run out next month, drained as a record-number of people were put out of work by the shuttering of businesses due to the coronavirus. Without an infusion, businesses could be taxed more to replenish the fund.

Hence, the reallocation, said Sen. Arthur Orr, R-Decatur.

“Businesses were looking at paying about four times what they’re paying now,” Orr said. 

With the $300 million transfer, the increase will now be about 1.5 times their current rate, he said. 

“This will offset the amount tremendously,” Orr, Senate education budget committee chairman, said.

The state’s unemployment insurance benefits trust fund, fueled by a tax on employers, had a balance of about $750 million before the pandemic.

As of last Friday, there was $155 million, said Tara Hutchison, a spokeswoman for Alabama’s Department of Labor.

She said the fund could run out in as soon as four weeks, maybe a little longer, depending on how much is paid out weekly. When the fund becomes insolvent, the state will have to borrow money from the federal government.

“We have already begun the paperwork to start that process,” Hutchison said. That federal loan would have to be paid back through the tax on employers.

Hutchison said that discussions about the tax increase are ongoing and no decisions have been made. A Labor document dated earlier this month said that without the $300 million transfer, the employer tax rate could increase by more than 500%. Even with the transfer, increases are expected.

Congress put tight restrictions on how the funds could be used, including not allowing any expenses other than those directly related to the outbreak and not allowing any spending past Dec. 30.

The unemployment fund was not included in the original distribution of the CARES Act money in May, when after a sometimes terse debate about control and spending of the money, Gov. Kay Ivey and lawmakers agreed on a distribution plan to various state agencies, organizations and in some cases, individuals.

That distribution plan, passed by the Legislature and signed into law, allows Ivey to change the flow of funds with the unanimous approval of six top lawmakers: the Speaker of the House, the Senate President Pro Tem and the four budget chairmen. The full Legislature does not need to approve the changes.

Sen. Greg Albritton, R-Range, said the six lawmakers needed to approve changes in CARES money appropriations had a couple of conversations on Tuesday about the reallocation.

“I think most of us are comfortable that is the right step to take and a good use of CARES funds,” Albritton, the Senate General Fund budget committee chairman, said Wednesday. “We are trying to make this an effective use of money that’s legal and proper.”

Albritton also said more changes may be coming.

“Based on the discussions we’ve had, the likelihood of changes is high,” he said. 

Orr also said he thinks lawmakers and finance leaders will have to “huddle once again” in the future as certain pools of money are spent, and some are not. 

As of Tuesday, $1.499 billion in Coronavirus Relief Fund funds had been allocated and $252 million in payments have been processed, according to a public dashboard.

Rep. Steve Clouse, R-Ozark, said Congress’ restrictions on the spending of the money limits agencies’ options. For example, of the $200 million allocated to the Alabama Department of Corrections, only $7.8 million had been spent as of Tuesday.

“With the strings attached, there’s just so many supplies you can buy like masks, gowns and sanitation supplies and that type of thing,” Clouse said.

Orr said the money for unemployment will be pooled from allocations that weren’t likely to be spent. Details aren’t yet publicly available.

“We went over where the money had not been spent,” Orr said. “We weren’t going to do this and then come up short with certain state agencies needing CARES money.

“… We feel comfortable that no one who had true losses because of COVID will be left out in the cold.”

Clouse said many lawmakers are eager to see some of the CARES Act money used to expand access to high speed internet, especially as some students are required to learn from home.