July 23, 2024

Keeping Media and Government Accountable.

Kansas can avoid potential $200 million tax hike on business

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Citing information from the National Council on State Legislatures, the Tax Foundation says the Kansas unemployment trust fund is $196 million below its pre-pandemic level, potentially setting up employers for a huge tax increase if the trust fund is not replenished.  But the tax increase can be avoided if Governor Kelly’s SPARK committee and the State Finance Council allocate available federal funding instead of spending it elsewhere.

The State of Kansas is collecting $1.6 billion from the American Rescue Plan Act (ARPA) and it can be used to backfill the unemployment trust fund.  The state has already allocated $500 million of COVID relief money to the unemployment trust fund, but the Tax Foundation report says another $196 million can be applied.

While Kansas sits at 111% of the federally-defined minimum adequate solvency — technically — it is also true that because of the aged and backlogged UI system, back payments to Kansans who had already waited months for payments could reduce that considerably.

Kansas, unlike some other states, did not take a federal loan to keep its system solvent. However, the United States Department of Labor says Kansas’ solvency level for fiscal 2020 is suboptimal.

USDOL says Kansas has a reserve ratio of .75 — 1.0 is considered the minimum. The reserve ratio is the trust fund balance compared to yearly benefit costs.  

The Tax Foundation notes that “under ARPA, states are permitted to use Fiscal Recovery Funds not only to pay off Title XII Advances, but also to replenish their trust funds to pre-pandemic levels — defined as levels as of January 27, 2020. State trust fund balances are, on net, $83.6 billion lower than they were at the start of the pandemic, but the authorized amount to restore states to pre-pandemic balances is slightly higher because 11 states have higher UC trust fund balances now than they did pre-pandemic, largely due to earlier infusions of $7.5 billion in federal aid under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.”

The foundation points out that using the ARPA funds to return to at least nominal solvency only makes sense.

“… replenishing these funds through tax revenues would require years of astronomically high tax rates on employment. Unemployment insurance tax rates on businesses rise automatically when trust fund balances are low, and many states have intervened to limit the size — and delay the implementation — of these automatic rate increases.”

Security issues, fraud abound, computer fix still months away

Moreover, Kansas has had massive security and fraud issues, and bids have not even yet been let to replace the dated system.

As The Sentinel reported earlier this year, as much as half of the state payments that were made may have been overpayments or fraud.

Kansas Policy Institute, which owns The Sentinel, said in February the U.S. Department of Labor estimates overpayments on a 3-year average (June 2017 to June 2020), putting Kansas at 14.2% of all payments. The USDOL also estimates about half of that over-payment is caught by the state agency. So the potential outstanding overpayments (over-payments not caught by the Kansas Department of Labor) is 6.4%. On that basis, overpayments would have been near $12 million for the five weeks the center examined.

To estimate fraud, KPI used testimony given to the House Commerce Committee by Phil Hayes of the Kansas Council of the Society for Human Resource Management. KS-SHRM surveyed Kansas businesses and found, on average, 73.14% of UI claims were ineligible recipients. 

Assuming the same KDOL catch rate with overpayments and applying the average weekly payout to the number of outstanding fraud claims (32.91%) the center found the five prior weeks totaled nearly $80 million.

Also in February, an “accidental hack” by an average user revealed a security flaw that would allow people not even logged into the system to retrieve other’s personal data.

Meanwhile, the Kelly administration finally issued a request for proposal to update the system in April, and as of mid-September had yet to let a bid — and, according to the Topeka Capital-Journal, all four finalists have had major issues in other states.

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