More details available on CARES money shifts, tax increase on employers

More details available on CARES money shifts, tax increase on employers
(Source: WBRC)

MONTGOMERY, Ala. (WBRC) - Gov. Kay Ivey on Thursday officially announced a transfer of $300 million in CARES Act funding to the state’s rapidly shrinking unemployment benefits fund, a move designed to spare businesses a major tax hike.

A smaller tax increase on employers is still expected and some state and business leaders are hopeful more CARES Act money will be put toward unemployment in the future.

“Since the $1.9 billion in CARES Act funds were allocated to Alabama, I have worked to get those funds into the hands of those Alabamians who need it,” Ivey said in a written statement. “My administration anticipated shifting in the allocation of this money, and we will continue evaluating our options as we move forward.”

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

Unemployment benefits were not included in the May distribution. To get the $300 million, state leaders have decided to reallocate money from several other previously approved allocations or “buckets.” According to Ivey’s office, they are:

  • $25 million from state agencies for costs directly related to the pandemic (originally allocated $300 million);
  • $25 million from equipment and infrastructure necessary for remote work and public access to the functions of state government (originally allocated $53 million);
  • $43.49 million from technology and infrastructure related to remote instruction and learning (originally allocated $300 million);
  • $75 million from the Alabama Department of Corrections (originally allocated $200 million)
  • $48.34 million from a miscellaneous fund “for any lawful purpose” as defined by Congress and Treasury with passage by the Alabama Legislature (originally allocated $118.34 million);
  • $83.15 million from citizens, businesses, non‐profit and faith-based organizations (originally allocated $300 million).

The federal money has proven to be a challenge to spend. 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.

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.

Meanwhile, the state’s unemployment insurance benefits trust fund could run out next month, depleted as a record-number of people were put out of work by the shuttering of businesses due to the coronavirus. Prior to the pandemic, it had a balance of about $750 million. As of last week, it had $155 million.

Alabama’s unemployment rate peaked at 12.9% in April, when coronavirus driven city and state public health orders closed many businesses. By June, the state had paid $2 billion in unemployment benefits to 308,127 claimants.

When the unemployment fund becomes insolvent, the state will have to borrow money from the federal government. That federal loan would have to be paid back through the tax on employers.

Without the $300 million infusion, unemployment insurance tax rates for employers would increase by 508%, Ivey’s office said. With the transfer, that increase will be more like 200%.

A business with 20 employees and quarterly taxable payroll of $160,000 now pays about $1,040 in unemployment tax. With the transfer, they’ll pay $3,120. Without the transfer, they could have paid $6,320.

“I agree with Gov. Ivey that this is a necessary allocation of CARES Act funds in order to mitigate the impact of increased taxes on Alabama’s businesses,” Alabama Department of Labor Secretary Fitzgerald Washington said in a written statement. “Without this infusion, employers could be facing an unemployment insurance tax increase of more than 500%, which could very well force many businesses to close their doors forever, resulting in even more job losses in Alabama.”

New tax rates would take effect in January.

Those rates are calculated usually by December, but by law the employers must be notified of the 2021 tax rate no later than January 31, 2021, Labor spokeswoman Tara Hutchison said Thursday.

The redirection of funds to Labor required approval from six top lawmakers, per state law. Several of them told Alabama Daily News that more changes could be coming as money is — or isn’t — spent.

Some say any additional unspent money should be directed toward unemployment and easing that looming tax increase on businesses.

“If we’re going to have leftover money, which it appears we are, why don’t we put it toward ensuring we don’t have a tax increase on small businesses who are still struggling because of the shutdowns,” said Sen. Chris Elliott, R-Daphne.

Rosemary Elebash, Alabama director of the National Federation of Independent Businesses, said she’s been anxiously watching the unemployment fund drop. She said businesses “absolutely appreciate” the $300 million transfer and if more money is available later, she’d request it be used for unemployment.

“As you look at these tax rates, you can see that any additional transfer that could be made would reduce the burden on small business owners,” Elebash said.

Meanwhile, some businesses haven’t recovered from orders that they close or reduce capacity, making a tax increase even more burdensome, she said.

Elliot was the lone Senate “no” vote in May on the plan to distribute the money.

“We appropriated money into buckets that had no specific purposes,” he said Thursday. He said the state should have assessed the needs, then appropriated the money during a special session.

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