Oregon lawmakers consider softening tax blow to layoff-weary businesses

By Kate Davidson (OPB)
April 2, 2021 7:16 p.m.

HB 3389 would affect unemployment taxes charged to employers in the state

Oregon lawmakers are considering a bill to help employers whose unemployment taxes spiked in 2021 because of layoffs caused by the pandemic. House Bill 3389 had its first public hearing Thursday in the House Committee on Rules.

“I opened the mail in November and saw this unemployment rate increase and I was shocked,” barber shop owner Kimberly Spiegelberg told lawmakers.


“I was in tears.”

Spiegelberg said she expects her unemployment taxes to increase by about $70,000 this year. That’s despite closing a dozen barber shops and laying off 125 workers when the pandemic hit, she said, then struggling through reopening and rehiring.

Spiegelberg is not alone. More than 120,000 employers in Oregon saw their tax rates rise this year, even as the pandemic raged on.

The reason lies in the state’s formula for maintaining adequate reserves in its unemployment insurance trust fund — the pool of money used to pay regular unemployment benefits.

Oregon employers pay into the fund through payroll taxes. When the fund gets low enough, employer tax schedules rise to replenish it. Within each schedule, the tax rate imposed on individual employers depends on something called their “experience rating.”

There lies the rub.

When an employer lays off workers more than other businesses, their experience rating goes up — as does their tax rate. That has led to a painful irony in the pandemic. Businesses such as restaurants and gyms laid off staff en masse when forced to close to protect public health. Those businesses now bear some of the greatest tax increases.

HB 3389 has bipartisan sponsors, including Rep. Paul Holvey, D-Eugene, and Rep. Daniel Bonham, R-The Dalles. The legislation is meant to provide both targeted and long-term relief to employers, while preserving the solvency of the trust fund. If enacted, it’s projected to save employers $2.4 billion by 2029.

“We feel that the adjustments in House Bill 3389 will still allow us to stay solvent, even during this recession,” David Gerstenfeld, head of the Oregon Employment Department, told lawmakers.


Oregon’s unemployment compensation fund is the envy of other states, with a remaining balance of roughly $3.8 billion as of January.

In the short-term, HB 3389 would allow some employers to defer and even forgo some tax payments.

The Employment Department currently allows employers with rate increases of 0.5 percentage points or more to defer up to one-third of their 2021 tax obligation without interest or penalties. HB 3389 would codify that. The hardest-hit employers could also have part or all of those deferred payments forgiven.

The measure would also step back in time. For the years 2022-2024, employers would be taxed according to the experience rating they had before the pandemic in 2020. The intent is to lessen the disproportionate tax burden now faced by businesses that endured sweeping layoffs.

The bill would make permanent changes too. It would require the state to look back over a longer period — 20 years, instead of 10 — when calculating the solvency of the trust fund. But it would also require the state to essentially ignore 2020 and 2021 as it looks over past recessions to gauge how much it needs to save for the future.

“We don’t want to be setting the future trust fund levels assuming that we’re going to have another recession like this historic one we just had,” Gerstenfeld told OPB.

That means if HB 3389 becomes law, the state would charge employers enough to prepare for an event like the Great Recession, rather than the coronavirus crisis.

Finally, the measure would reduce the unemployment compensation fund’s adequacy targets by about 10% overall.

Oregon employers are now in tax schedule four, the middle of eight such schedules. With no change to current law, the Employment Department forecasts that Oregon employers will reach the highest schedule — schedule eight — and pay the highest taxes by 2023. Under HB 3389, the agency forecasts taxation would peak at schedule six in 2023 instead.

Several industry groups spoke strongly in favor of HB 3389 at Thursday’s hearing, raising only a few criticisms.

“We need to fix the 2021 tax rates affecting so many businesses right now,” said Greg Astley of the Oregon Restaurant & Lodging Association. “Forgiveness of the unemployment insurance taxes for this year for businesses needs to be more expansive.”

Anthony Smith, the Oregon State Director for the National Federation of Independent Business, spoke up for the roughly 16,000 employers who actually saw their unemployment tax rates fall this year.

Those employers, he said, likely improved their experience ratings over time and should have the option to keep them.