San Francisco Chronicle - (Sunday)
Nonprofits getting bills for benefits of jobless
Many nonprofit organizations that chose to fund their own unemployment benefits rather than pay into their state system and had to lay off employees because of the coronavirus will soon face a large payment that could strain their finances or even put some out of business.
Privatesector employers must pay a tax on each employee that goes into their state’s trust fund that pays unemployment benefits. Publicsector employers, some nonprofits and federally recognized tribes have the option of not paying the tax but reimbursing the state fund for 100% of the unemployment benefits paid out to employees they lay off.
Many nonprofits chose this option, known
as selfinsurance or the “reimbursable method,” because they “have a stable workforce, and the tax is more than they would pay” in unemployment benefits, said David Thompson, vice president of public policy with the National Council of Nonprofits.
The coronavirus changed that equation, forcing many nonprofits to lay off much of their staff at the same time donations were dropping and fundraising events being canceled.
Many cities and counties also selfinsure for unemployment, but most in the Bay Area have generally retained their employees. That could change as they try to balance their budgets.
When employees of selfinsured employers get laid off in California, they file claims with the Employment Development Department and get paid just like privatesector employees, and probably don’t even know their former employer is footing the cost.
Selfinsured employers will not have to pay back unemployment benefits coming from the federal government under the Cares Act, such as the extra $600 per week added to the basic benefit from April through July.
The Cares Act also gave selfinsuring employers a break: Section 2103 says they will only have to pay 50% of all unemployment claims paid from March 13 through Dec. 31. The federal government will pay the other half. The U.S. Department of Labor, however, said these employers must pay 100% of their bill up front, and wait to be reimbursed for the other half. Coming up with 100% is a stretch for many nonprofits, and “could even contribute to bankruptcies,” 31 nonprofit groups said in a letter to the department.
The council and others have been lobbying Congress and the Labor Department to relieve them of having to pay 100% up front and wait for reimbursement, “which could take many months at the earliest,” Thompson said. YMCA of the East Bay chose to selfinsure because “the majority of our workforce is parttime,” said Fran Gallati, its chief executive officer. “The formula for unemployment insurance is antiquated. It’s designed for a fulltime workforce.”
In California, employers pay unemployment tax on each worker’s first $7,000 in annual wages. The tax rate varies by industry and the employer’s history of layoffs. It ranges from 1.5% to 6.2% of wages. The wage cap means that an employer pays the same tax on someone making $7,000 or $170,000 a year.
California is one of only five states that caps the unemployment tax at $7,000, and this is one reason its unemployment trust fund as of Jan. 1 was rated the most insolvent state fund by the U.S. Department of Labor. The YMCA runs health clubs, early childhood and afterschool programs, summer camps, fitness classes and other activities at five facilities in the East Bay, all closed because of the coronavirus. Part of its mission is providing a first job for people, such as lifeguard and camp counselors.
It had to lay off about 1,100 workers, including some who taught only a couple exercise classes a week. Those who did not work enough to get regular state unemployment should qualify for the new federally funded pandemic unemployment assistance, which selffunded employers will not have to pay back.
Gallati won’t know until July how much his organization will have to repay in benefits for April, May and June. But he figures it will be “in the millions even at 50%,” he said. “It won’t put us under. It will be a negative.”
Goodwill of San Francisco, San Mateo, and Marin furloughed about 500 of its 600 workers when its donation centers and stores had to close, although it paid them for four weeks after shelterinplace orders came out and continues to pay their health benefits, said CEO William Rogers.
Goodwill’s mission is to provide work experience for people who are homeless or formerly incarcerated or face other barriers to employment, so they can eventually get a better job.
“We are different from most nonprofits because they get funding through philanthropic means. We earn 80% of what we need to operate through our business. When we had to shut down, we immediately lost 80% of our revenues,” said Rogers.
Goodwill couldn’t get a loan from the federal Paycheck Protection Program to cover payroll because it has more than 500 employees.
The center reopened five donation sites last weekend, and hopes to reopen a few stores in a few weeks.
Rogers estimates that its unemployment costs over a 10week period would be around $1.5 million, half of which it will recoup. “We can pay that, but it would take a significant
“We are different from most nonprofits because they get funding through philanthropic means.”
William Rogers, CEO of Goodwill of San Francisco, San Mateo and Marin
amount of our reserve,” Rogers said.
I contacted four Bay Area counties — San Francisco, San Mateo, Santa Clara and Solano — to see if they selfinsure unemployment benefits. All said yes, but they have laid off no employees or very few as a result of coronavirus.
The city of San Jose is also selfinsured. It has not laid off any fulltime employees, but has furloughed about 1,000 parttimers who may be eligible for unemployment, San Jose spokeswoman Carolina Camarena said in an email.
San Francisco has not had any layoffs — yet. Because of the health crisis, the mayor will propose a balanced budget on Aug. 1, instead of June 1. “It’s not possible to bridge the budget shortfall we have without some reduction in labor costs, but we don’t know what form those will take until we know what contract changes unions might agree to,” Michelle Allersma, a director in the controller’s office, said in an email. She added that “the need to pay more for unemployment claims will certainly reduce the amount of savings the city can realize through any layoffs that do happen.”
More relief could be on the way. The socalled Heroes Act would let selfinsured employers pay 50% of their claims up front, without having to pay 100% and wait for reimbursement. It has passed the House but not the Senate.
A group of 30 senators from both parties sent a letter to Senate leadership asking for federal funding to pay 100% of selfinsured unemployment claims, not 50%.
Eight states have agreed to cover most or all of the 50% not picked up by the federal government, according to the nonprofit council. California is unlikely to follow suit, given the state of its unemployment trust fund, Thompson said.
Earlier this year, California became the first state to borrow from the federal government to pay unemployment claims. Thanks to an influx of firstquarter payroll taxes, it was able to pay back the $1.4 billion it borrowed in April and May. As of Wednesday, the trust fund had a positive balance of $144 million.
However, the first quarter “is when states get the majority of all their UI tax collections” for the year because of the wage cap, so presumably California will have to start borrowing again, said Jared Walczak, director of state tax policy with the Tax Foundation.