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South Dakota Chamber Of Commerce - Capitol-ism E-Newsletter
January 25, 2016

Re: SB 47 - Good News - Unemployment Insurance Rates Could Be Reduced

But –A New Administrative Fee Will Be Created


To those among us who are “zero sum” philosophers, those who can’t relish good news because they figure bad news is next; this comes close to proof that you’re not wrong. 

Submitted at the request of the Department of Labor, SB 47 reduces the “premiums” charged for Unemployment Insurance and creates a new fee that will be set at the same amount of the rate reduction. 

Background.  Unemployment Insurance (UI) is a system that allows people who have lost a job through no fault of their making to receive benefit payments while they look for another job.  Employers pay a “premium” (a.k.a. tax) to provide these benefits.  The Federal Government requires each state to have a UI system and also assesses a federal UI tax.  Each company’s UI “premiums” rate is determined by its own account and set by the record of claims that have been charged to their account.

South Dakota is one of four states that allow a business to earn a rate of “zero” when they have enough money in their UI account.  The rates for businesses that have not earned a “zero” rate start at 0.1% and the maximum rate is 9.5% . . . of what you ask?  Good question.

The UI rate is applied to the first $15,000 of wages for each job or new hire a business has each year.  Therefore, the amount of the tax ranges from $15/job (0.1%) to $1,425/job (9.5%).

There is also a parallel fee that collects money using the UI reporting system and puts it into the Future Fund as one of the major economic development tools used by South Dakota governors since the early 1980s.  That fee has a cap of about 0.56% and will not be affected by this year’s proposed changes.

Trouble.  Within the Department of Labor there is the Division of Unemployment Insurance and the staff that collects the UI reports along with the “premiums”.  They also meet with people who have lost their jobs to get their benefits arranged and help them find a new job.  The cost of these public servants has been paid for by the Federal Government using the money paid in federal UI “premiums”.  Until lately.

The Federal Government has reduced the amount they are paying to states for UI staffing.  Accordingly, Department of Labor Secretary Marcia Hultman has worked to reduce costs and has reduced staffing levels.  Unemployment Insurance staff has been reduced by approximately 20 positions, mostly through attrition and retirement but there were nine employees laid off.

SB 47 – A New Fee.  This bill will create a new administrative fee to be paid by businesses along with their UI “premiums”.  The money collected by this fee will not be deposited into the business’s account but used directly to help make up a portion of the funds lost due to reduction in the federal payments.  It is against the law for the department to use the money collected in UI “premiums” to be used for anything but paying benefits.  This is a good law and prevents one of those interesting political scandals where business learns that their money is being used for seminars that teach fish how to swim.

Here are some bullet points to explain the new fee:

- The fee will be 0.02% or $3/employee when applied to the wage base of $15,000. 

- The bill reduces the UI “premiums” by 0.02% so there is no additional cost to business. 

- The fee will not start until January of 2017, a year from now.

- The fee will raise an estimated $800,000 which will be dedicated to the UI Department and cannot be used for other purposes.

- Businesses that have earned a rate of “zero” and any non-profit organization that pays reimbursed costs for claims rather than “premiums” will not pay the administration fee. 

Another Solution.  There is nothing that prevents the funds needed for the administration of the UI program from being included in the Department of Labor’s budget and paid for using the state’s general fund.  The Board of Directors of your South Dakota Chamber of Commerce would endorse that solution as an alternative to the rate reduction and new fee.  It should be noted that there is no guarantee that if the money is taken from the general fund now, the fee will not be imposed in the future without the accompanying rate reduction.

First Hearing. This past week, SB 47 had a hearing in front of the Appropriations Committee and the Chamber testified as a proponent of SB 47 and offered testimony affirming that the Department has a real need for funds and expressed support for the actions taken by Secretary Hultman to reduce costs.  Secretary Hultman has done what all business owners do when confronted with declining sales or in this case revenue.  She reduced cost and implemented very difficult staff reductions.  The Department is NOT in a position to simply “drum up more sales” and that, as they say, “is a good thing”.

The Chamber acknowledges that the proposed fee is a reasonable solution.  The accompanying rate reduction to offset the fee is a balanced way to seek the funds to solve this problem.  The Chamber would also encourage legislators to take time to see if the funds needed might be included as part of the Department of Labor’s budget and be taken from the general fund.

HB 1067 - The Economics of Health Insurance Could Make You Very Sick

When you are using a health insurance plan it means one thing - it is how you get better and costs don’t matter until the fear, hurting and bleeding stop.

When you are purchasing health insurance, it means something entirely different.  The focus is entirely on price and getting the best coverage possible while keeping premiums as low as possible.

The economics of healthcare insurance makes one thing very clear.  The most affordable health plans will increasingly offer a select number of physicians who have agreed to accept lower fees in exchange for being the exclusive provider for the people on the plan.

How does this system offer both a wide selection of healthcare providers and the most cost effective options of narrow networks?  The answer is HB 1067.

Voters spoke very clearly that getting to choose from a broad list of healthcare providers was important to them, so HB 1067 creates a new insurance mandate that companies selling health insurance must offer a plan that includes all the healthcare providers they have under contract.  This assures that there are plans using broad-based networks. 

AND HB 1067 clearly states that insurance companies wanting to offer business and individual plans based on narrower networks with negotiated fees, and lower premiums, could do so as well. One of my father’s mantras was “There is nothing more stubborn than a fact.”  In the marketplace today, plans using these networks of healthcare providers are offered at lower rates than plans that include most providers, and that is a fact.

What about patients choosing their own doctors?  The popular phrase “patient choice” has never been accurate.  The South Dakota Chamber of Commerce and Industry pointed out during the campaign that there is nothing patients can do to “choose” a doctor.  Instead, it is the doctor who has the power to decide if the insurance plan of a patient pays enough for him/her to decide to be placed on the panel of providers for that insurance.  If the doctor doesn’t think the insurance plan pays enough, there is nothing a patient can do – at that point any illusion about choice comes to an end.

Most people still get health insurance through their jobs.  Small and medium sized businesses need to be able to have the option of narrow networks to hold down cost increases of health insurance.  These businesses don’t have self-funded plans like large businesses have; they are dependent on insurance companies to do those negotiations for them.  That isn’t possible without HB 1067.         

South Dakota Values – Cheaters Not Welcome - Don’t Want Their Gadgets Either

HB 1051 - Prohibit the use of certain automated sales suppression devices and to provide penalties for their use.

This is a bill that will not affect law abiding businesses or owner/managers.  However, if your employees or partners have taken their eye off the “ethics/law abiding” part of life and have installed devices or programs that will not record all of your sales and the tax you collected which would allow you to keep the money that was collected for sales tax and create a set of books that is fraudulent, you should really stop doing that.

HB 1051 will create new law for South Dakota that will make it easier and more effective to prosecute those who are using “automated sales suppressing programs” as tax cheats.

Because they are.

The core of the bill is section two that clearly states these devices and programs are illegal.  It has always been a crime to collect sales tax money and keep it.  Not remitting funds collected in the name of sales tax will get you a meal plan at taxpayer’s expense and a government provided wardrobe.  This bill fine tunes the law so that the methods used to cheat are illegal, which makes the hole that the crooks are digging, deeper.  Here is section two of the bill:

Section 2. That chapter 10-59 be amended by adding a NEW SECTION to read:  It is unlawful to knowingly own, sell, rent, lease, purchase, install, transfer, possess, use, access, design, manufacture, or program any automated sales suppression device or phantom-ware. A violation of this section is a Class 5 felony.

The bill empowers law enforcement to seize sales suppressing software and use that as evidence against the business owners or others who have installed and used the programs or devices.  The bill is one of those that seems kind of odd at first blush and might lead to an over-zealous prosecutor getting ahead of themselves in a rush to action but those are small risks compared to the state missing millions of dollars. 

Thank you for being a member of the South Dakota Chamber of Commerce and Industry.

Business Day at the Legislature - Thursday, February 18


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