Washington is no longer facing a massive budget shortfall, according to the latest state revenue forecast.
That does not mean the economic crisis has passed, however.
Legislators and Gov. Jay Inslee must still prioritize the recovery of jobs lost — or nearly gone — because of the pandemic and repeated public-health shutdowns.
That includes finding ways to reduce soaring unemployment-insurance taxes, which are increasing employer taxes by billions of dollars. Those are dollars that could otherwise be used to restore jobs and revive companies.
While the state’s overall strength is remarkable, employers and many households still face a long and difficult recovery.
Hundreds of thousands of jobs were lost this year, untold scores of businesses are shuttered, and the crucial manufacturing sector is entering a prolonged downturn.
Policymakers are accustomed to big annual increases in revenue and spending. A new mindset is needed when they reconvene in January.
They need to reduce the looming surge in unemployment taxes and avoid burdening households and employers with other new taxes that impede recovery, dampen job growth and increase the cost of goods and services.
Extraordinary job losses through the pandemic spent down the unemployment insurance trust fund that pays worker claims. Congress should assist with this problem in all states, as part of its next round of relief funding.
Even if federal support comes through, Washington is likely to need unemployment insurance (UI) tax increases to get its fund back to required levels. In July, it projected the average tax per employee would rise from $317 this year to $936 by 2022.
But averages understate the impact. In the hospitality industry, which is particularly hard hit now, thousands of employers may see their UI tax leap from $53 to at least $1,401 per employee, according to Bob Battles, the Association of Washington Business general counsel.
That’s not the result of fraud that occurred when the state rushed out payments early in the pandemic, without first verifying unemployment claims. The net loss to fraud is about $230 million, much of which were federal dollars.
Legislators do need a more specific accounting of that loss. They also need to scrutinize management decisions that made Washington vulnerable to fraud and long delays resolving claims afterward.
But fraud impacts pale in comparison to the trust fund’s depletion as a result of massive unemployment. More than $12 billion was paid out by the Employment Security Department to more than 1 million Washingtonians since March.
Federal grants covered more than half of those payments. But the trust fund is still dwindling and must be replenished to meet minimum required levels.
A state task force is exploring options to restore the fund without such a huge tax spike.
State Sen. Karen Keiser, D-Des Moines, is simultaneously circulating a proposal that includes some intriguing ideas for tempering UI tax increases.
Keiser suggests extending the period of time used to calculate employers’ “experience” rates, so they are a bit less skewed by 2020’s surge in unemployment claims. Another proposal would cap the “social tax” component, which is slated to nearly quadruple.
Those are relatively straightforward legislative changes that some other states have done to smooth UI increases.
Keiser deserves credit for advancing this conversation. But some other elements of her proposal are problematic, including a dramatic increase in the taxable base wage, from $52,700 to $69,000.
Legislators could also extend the period of time required to replenish the fund, smoothing out the impact of the higher taxes.
There are no easy solutions. Bottom line, the state needs billions to restore the fund so it can withstand the next cataclysm.
With or without more federal support, Inslee and lawmakers must promptly find ways to address this problem and assist Washington’s recovery.
This must be done before the higher UI taxes are due early next year, and before thousands of struggling employers are forced to cut more jobs or close altogether.