The Ohio General Assembly had an action-packed final week of May, sending more than 30 bills to Governor Kasich for signature. One bill that will have a substantial impact on the Ohio business community is House Bill 390 (HB 390). This is not because of the bill’s original purpose of exempting the sale of natural gas by a municipal gas company from sales and use tax, but from a last minute amendment that added a mechanism for the State of Ohio to pay off the remaining balance of the Federal Unemployment Debt using a loan from the Ohio Division of Unclaimed Funds. Because the state has been carrying an unpaid balance for advances from the federal government for the payment of unemployment benefits, Ohio’s employers have been subject to a graduated reduction in the tax credit against the Federal Unemployment Tax (FUTA). This has resulted in businesses paying an increased annual penalty payment per employee, regardless of the employer’s experience rating. In an effort to negate this issue, the Legislature ordered the state, by means of HB 390, to use approximately $225 million in unclaimed funds to pay off this debt in September 2016, thus avoiding the 2017 escalation of the penalty on employers that could cost employers nearly $400 million. The funds will be recouped by a one-time surcharge of roughly $50 per employee, to be paid by businesses largely in the first quarter of 2017.
Although the one-time surcharge comes on the backs of employers, the Director of the Ohio Office of Budget and Management estimated that the overall cost to employers will be $200 to $300 million less with this law change, because the surcharge will be a substantially lower amount than the penalty payment would have been for 2017. The legislation also makes employers responsible for paying the interest of future borrowing for unemployment compensation debt, which the State of Ohio agreed to pay as part of the last borrowing cycle. Another significant provision requires employers to begin repaying any future borrowed debt immediately, including interest, before federal penalties kick in after two years. This provision was aimed at encouraging the business interest groups to work with the General Assembly and Administration over the summer to find a long-term and sustainable solvency solution for the Unemployment Compensation Fund going forward.