Nonprofits leave state fund after jobless tax soars

The Honolulu Star-Bulletin reported on April 11 that about 100 Hawaii nonprofits have opted out of the state's $500 million unemployment trust fund for the next two years after unemployment taxes saw a seven-fold increase. Despite some relief provided by the Legislature to cushion the blow to Hawaii businesses, the nation's largest increase in jobless payroll taxes has prompted many nonprofits to use state exemptions to pull millions out of the fund.

Organizations leaving the fund include Straub Clinic & Hospital, Chaminade University of Hawaii, Catholic Charities of Hawaii and most of the state's private Catholic schools. They have chosen to self-insure unemployment claims, which will help some of them avoid paying increases to the state's unemployment insurance fund triggered by expected shortfalls related to a tax holiday and joblessness.

The state law allows 501(3)(c) nonprofits to opt out of the UI fund, which pays benefits to out-of-a-job workers, said Darwin Ching, Hawaii Department of Labor and Industrial Relations director, who estimated about $3 million less in collections based on nonprofits requesting to opt out. The organizations will be required to self-insure claims dollar-for-dollar for at least two years and cannot tap the state's trust fund to pay UI benefits to former workers, Ching said.

Last month, the governor signed legislation that reduced the average amount businesses would have had to pay from $1,070 per employee to about $630 this year and $970 next year. The increase is still staggering, since organizations paid only $90 on average per worker in 2009. For example, Catholic Charities, with 300 employees, faced a  jump from $10,000 in 2009 to more than $200,000.

While some nonprofits will see a savings as a result of their decision, costs will go up for others, said DLIR spokesman Ryan Markham. "Certain nonprofits will get stuck with a much bigger bill than they would have if they had just contributed," Markham told the newspaper. "If unforeseen layoffs occur, that could happen."