Small businesses in Florida battling the Great Recession have a new foe on the horizon: skyrocketing unemployment compensation taxes.
Depletion of the trust fund used to pay unemployment benefits has triggered what the state Revenue Department is calling a record tax increase in 2010 for Florida's half-million employers.
The minimum annual rate — charged to an employer with a solid history of retaining employees — will jump almost twelvefold, from $8.40 per employee to $100.30, revenue officials said Wednesday. The maximum rate, currently $378 per employee, would rise to $459.
Rick McCallister, president and CEO of the Florida Retail Federation, said many retailers are just starting to get back on their feet, and the tax hike threatens to shove back recovery.
"It's just going to be painful," McCallister said. "If you're a struggling small business just barely making payroll now, it could be a death knell."
Employers had been bracing for a tax hike since last summer when the state fund used to pay unemployment insurance benefits ran out of money and began borrowing federal funds to stay afloat.
Under state law, if the trust fund falls below 4 percent of the total taxable payroll in the most recent fiscal year, it automatically triggers an adjustment in unemployment tax rates for the next year.
The fund dropped from more than $1.3 billion at the end of 2008 to zero in August, as the state's unemployment rate rose toward 11 percent. Since then, Florida has borrowed more than $600 million through an emergency federal loan program.
McCallister said replenishing the trust fund to the 4 percent level "equates to taking about $1.7 billion out of our economy that could go to new jobs or growth or expansion."
But it's tough to estimate how long the replenishment would take, or if the higher rates will be sufficient, until unemployment subsides. Florida is now tapping the federal lifeline at a rate of $300 million a month, and unemployment is projected to continue rising into 2010.
Revenue officials said they had no control over the size of the tax increase since it was tied to the 4 percent formula. They also said they have not calculated how much in revenues the tax increase would generate nor did they have an estimate on the average increase for employers. Florida's rising employment and drop in the number of employers have made such calculations difficult, said Robert Babin, legislative services director with the Florida Department of Revenue.
As of last September, the state had 464,588 employers, down from 501,955 in September 2008. The number of employees fell from 9.165 million to 8.189 million over the same span.
Notices next month
The state will send out notices of businesses' new individual rates in December, effective for wages paid on or after Jan. 1. Babin was confident that this marks the highest unemployment tax hike that small businesses in Florida have ever faced.
One factor contributing to the increase: The state used to tax only on the first $7,000 of an employee's wages. Now it will take a percentage of the first $8,500.
An employer's taxes are also based on such factors as the age of the business, number of employees, and whether a company has a high turnover rate of employees. An employer, for instance, who lays off workers in a given year will typically pay at a higher rate the next year. That makes a job-shedding employer pick up part of the burden placed on the state for paying unemployment benefits, but it also makes it harder for that cash-strapped business to balance its books.
That's the scenario for Ed Fink, who runs a west Pasco County landscape business called Turf Lawn & Landscape Maintenance Co. Fink was already anticipating higher unemployment taxes next year after laying off two of his workers.
The higher rates statewide probably won't add much more stress to his budget, "but I really don't know," Fink said.
"It would hopefully not knock anyone out of business, but with everything else being tight, you don't know what is going to be the straw to break the camel's back."
Rejected federal aid
Wednesday's news also ignited anew the debate over Florida's rejection of $444 million in federal stimulus dollars tied to unemployment compensation earlier this year.
The Republican-controlled Legislature rejected the funds, saying they came with too high a price tag in forcing the state to expand its pool of unemployment beneficiaries. House Majority Leader Adam Hasner of Delray Beach and other Republicans said accepting the money would have hurt businesses and created new entitlements.
State Sen. Tony Hill, D-Jacksonville, who sponsored an unsuccessful measure to expand eligibility of the state's jobless, said Wednesday that his bill could have saved employers up to $100 million in unemployment taxes.
Changing the unemployment system now to meet the federal requirements "is still within our reach," Hill said. "We can easily tap this money and lower the expected increase on employers."
Republicans late Wednesday fired back, saying that a Democratic bill to change unemployment requirements in the last session would not have lowered next year's tax rate. The tax rate was calculated based on the unemployment trust fund status June 30, three months before the bill's provisions would have taken effect.
Florida Chief Financial Officer Alex Sink, a Democrat running for governor, voiced her support for a legislative change.
"There's no doubt that Florida's families and small businesses have been hit hard, yet last session the Legislature willfully left millions of our taxpayer dollars sitting on the table in Washington," Sink said Wednesday.
Not everyone, however, is convinced this bout of higher taxes will be onerous on businesses, particularly healthy ones.
Henry Glime, president and CEO of Tampa-based Gallo Building Services, doubts the increase will have an impact on his fast-growing building materials and construction contracting company.
"If you look at (the increase) as a percentage of payroll, I think it's insignificant. … It doesn't even register," Glime said. "There's more erosion and leakage around the coffee machine."
Jeff Harrington can be reached at email@example.com or (727) 893-8242. Follow him on Twitter at twitter.com/jeffmharrington.
This article has been revised to reflect the following update: Republicans said late Wednesday that a Democratic bill to change unemployment requirements in the last session would not have lowered next year's tax rate.