The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Senate Committee on Labor and Technology on March 12, 2025.
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March 12, 2025, 3 p.m.
Hawaii State Capitol
Conference Room 224 and Videoconference
To: Senate Committee on Labor and Technology
Sen. Henry J.C. Aquino, Chair
Sen. Chris Lee, Vice-Chair
From: Grassroot Institute of Hawaii
Ted Kefalas, Director of Strategic Campaigns
RE: TESTIMONY OPPOSING HB202 HD1 — RELATING TO THE ADEQUATE RESERVE FUND
Aloha Chair Aquino, Vice-Chair Lee and other members of the Committee,
The Grassroot Institute of Hawaii would like to offer its comments in opposition to HB202 HD1, which would stealthily increase Hawaii’s unemployment tax by redefining what comprises an “adequate reserve fund.”
Currently set at 100%, the fund level would be increased by HB202 HD1 to 125% in 2026 and 150% for 2027 and beyond.
Put simply, this bill would increase the unemployment tax rate paid by local businesses by artificially raising the reserve fund far past 100%.
At present, the contribution rate schedule for Hawaii employers is set at C, which means that new employers pay a tax rate of 2.4%. If HB202 HD1 is enacted, that would push the contribution rate to D (3%) for 2026 and E (3.4%) for the years that follow. This would be a full 1-point tax increase, or a 41.67% hike in state unemployment insurance for new employers.
The bill offers no explanation as to why redefining the “adequate reserve fund” at the expense of Hawaii’s businesses would be necessary or desirable.
The Legislature should recall that the contribution rate returned to C only this year, after rising precipitously during the COVID-19 lockdowns. In 2021, the Legislature stepped in to prevent the contribution rate from rising to catastrophic levels. In 2023, the rate rose to level F, prompting some to call for a special Legislative Session to mitigate the harm from the spike in unemployment tax.
In effect, this bill would intentionally create a taxation scenario very similar to the one that required legislative intervention just a few years ago due to the threat it posed to Hawaii’s economy.
Hawaii’s business owners face many regulatory and financial challenges as they struggle to keep their doors open. This bill, if passed, would only add to that burden.
We urge you to defer HB202 HD1 and give Hawaii’s overtaxed businesses a break.
Thank you for the opportunity to submit our comments.
Sincerely,
Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii
