Senate Bill 5061 which passed out of the Washington State Legislature Friday, reverses the current unemployment trust fund tax increases that are looming for small business. While the bill would limit the massive estimated 500-700% increase in the unemployment tax rate by placing a cap on the amount of the increase, it still does not address the underlying structural problems with the Unemployment Insurance (UI) trust fund and its liquidity for future unemployment benefit payments. The tax cap would increase gradually each year through 2025.

The legislation would add a provision to allow unemployment insurance while seeking work from home for those that are susceptible to COVID. The legislation also would increase benefit payments from 15% to 20% of the average weekly wage. The increase in benefit would put further downward pressure on the fund balance creating an unsustainable long-term solution. The fund balance will need to be replenished in the future.

While the bill would add annual reporting to the legislature and the governor’s office including fund balance and other key metrics. it does not address long term structural changes that are needed to the UI trust fund.

As Washington Policy Center has recommended previously, there are several additional reforms that are needed.

• The Employment Security Department (ESD) should adopt new streamlined, properly authenticated systems to enable claims to be made efficiently, automatically, and securely.
• Pre-registration of employees and identity verification should be completed when employees are hired rather than when they are laid off.
• Lawmakers should legalize individual unemployment accounts to improve fund stability.
• Personal accounts should be used to provide workers with an added financial asset, encourage saving for retirement, and would relieve the state of most of the administrative cost, complication, and fraud of the current system.

Senate Bill 5061 is a step in the right direction, but it does not go far enough with reforms and the increase in benefit payments will create a long-term funding issue. The cap on the unemployment tax rates is, however, desperately needed. For some employers the cap will make the difference between staying in business or not.

The full Washington Policy Department ESD reform recommendations can be read here.

The bill now moves to the governor’s desk for signature.