A legislative proposal cutting the unemployment tax was unanimously approved by a House committee Friday.
Gov. Kristi Noem touted the change in her State of the State address Tuesday.
“This will bring an estimated $18 million savings to South Dakota businesses over the next couple of years,” she told lawmakers.
The Reemployment Insurance Fund is used to pay unemployment benefits to South Dakotans. It’s financed by a tax on employers, who pay more when the fund’s balance is low, plus an additional surcharge if it dips below a certain amount.
Department of Labor Secretary Marcia Holman told the House Commerce and Energy Committee the fund now contains $195.6 million. That’s roughly enough to pay benefits for 1.9 years, almost double what the federal government considers the minimum standard for similar funds.
“Once we realized that trust fund was growing at a rate that was higher than what we had established, it was time we look at what we could do to reduce the taxes,” she said.
The bill, introduced on behalf of the state labor department, cuts rates by .05% when the fund’s reserves can sustain the unemployment program for more than 1.5 years. It also lowers the thresholds for other rate schedules.
“What this means is tax cuts would be greater and in place sooner relative to the trust fund balance,” said Hultman, who argued the legislation will allow the department to deal with “ups and downs” in the fund.
The bill also modifies the surcharge imposed if the fund reaches emergency levels. Hultman said those thresholds haven’t been changed since 1961.
In supporting testimony for the bill, SD Chamber of Commerce lobbyist David Owen compared the current surcharge threshold to “jumping out of an airplane and not opening your parachute until you’re 100 feet above the ground.”
The bill would set new thresholds based on the formula giving the fund’s solvency. It also gives employers credits for surcharge payments, potentially lowering their future tax rate.
Hultman argued the legislation was justified given the fund’s health, which she said is driven by an increase in hiring and a decrease in unemployment payments.
“Those are just simply signs of our good, strong economy,” she said. “We have an increase in our workforce, and we have fewer people collecting benefits than we have had historically.”
Nathan Sanderson, a lobbyist for the SD Retailers Association, supported the legislation. He added the fund was boosted by federal unemployment benefits put in place during the Covid-19 pandemic.
“About $90 million of federal funds were thrown into this pot to help backfill it,” Sanderson said. “Thankfully, we didn’t have to increase taxes on businesses to pay for all of those benefits.”
$88.7 million in federal CARES Act Funds went to South Dakota’s Re‐employment Insurance Fund, according to the state Bureau of Financial Management.
The bill will be voted on in the state House of Representatives, then go to the state Senate. If passed, the new rates would go into effect in 2024.