State unemployment payments are helping thousands of Kansans make ends meet during this recession. But now business leaders are saying those same payments may make it tougher for Kansans to find a job in the future.

Business owners from across the state are warning that they likely will begin laying people off or leaving open positions unfilled in an effort to pay state unemployment taxes that are increasing, in some cases, by 400 percent or more.

“This is exactly the opposite of what you would ever hope our unemployment system would create,” said Rachelle Colombo, director of legislative affairs for the Kansas Chamber of Commerce.

Here’s what’s going on: The state fund that makes payments to unemployed Kansans is being depleted quickly. In fact, the state is expected to begin borrowing money from the federal government by the end of this month to keep the fund solvent.

As a result, the Kansas Department of Labor has raised the tax rates Kansas businesses must pay to fund the state’s unemployment program. Several Lawrence businesses said they were expecting an increase, but the size of the increase has caught many businesses off-guard.

At Checkers Foods, 2300 La., Jim Lewis said the unemployment taxes for his local grocery store will increase by nearly $19,000, or about 320 percent from a year ago. Because of how the state’s system is structured, Checkers must make the larger payment to the state by April 30.

Lewis already knows what he is going to do. He had two employees recently quit. He said he’s decided not to fill those positions, at least for a while, to make up for the increased payments.

“That’s what people will start doing,” Lewis said. “When someone quits you just don’t rehire. You just suck it up and move on. But that just makes the overall problem worse because that is just fewer jobs for the economy.”

The situation at Checkers isn’t unique. Kathy Toelkes, communications director for the Department of Labor, said the average unemployment tax rate for Kansas businesses has more than doubled in 2010, rising from 2.02 percent in 2009 to 4.37 percent this year.

“Obviously, it is an average, so some increases will be smaller, some will be larger,” Toelkes said.

In some cases, it is much larger. At Lawrence-based Allen Press, the company’s rate has increased by about 450 percent, said Rob Chestnut, the company’s chief financial officer. Chestnut, who also serves as Lawrence’s mayor, recently testified before state legislators asking for changes in the system.

He told legislators the increases were particularly frustrating for companies like his, which have paid far more in unemployment taxes than his company’s employees have received in unemployment benefits.

But he said his main point to lawmakers was the need for a system that creates more predictability about what rates will be in the future.

“We would rather have a steadier rate,” Chestnut said. “That may mean the fund is overfunded at times, but going from 1.2 percent to 5.4 percent can be a real shock, especially when the economy is struggling.”

That hasn’t always been the feeling at the Statehouse, though.

In 2007, amid concern the fund was becoming too large, state legislators passed a law that changed how the Department of Labor must set rates for the unemployment fund.

In essence, the law says that when the fund reaches a point that it can pay out 1.2 years worth of higher-than-average claims, then many businesses automatically will receive cuts to their unemployment tax rates. Those cuts, over the last three years, have ranged from 40 percent to 100 percent for individual businesses, Toelkes said.

In total, $286 million in unemployment tax receipts were forgone because of the rate reductions of the last three years, Toelkes said. Even without the rate reductions, the state still would be facing a shortfall from the increased number of Kansans who are seeking unemployment benefits, she said. She said the state has been paying out about $14 million per week in benefits.

But Toelkes said the 2007 law helped add to the shock factor of the most recent increases because instead of going from a normal rate to an elevated rate, businesses are now going from a reduced rate to an elevated rate.

Benefits at stake

Colombo, with the state chamber, said the 2007 law was a good change, and shouldn’t be blamed for the current shortfall in the fund.

“You have to factor in how many jobs wouldn’t have been created if that $286 million in capital wasn’t available to businesses but rather was sitting in the fund,” she said.

Instead, Colombo said, the shortfall is the result of large increases in the number of unemployed people, and especially the number of higher paid employees who have been forced to file for unemployment.

Toelkes said payouts have been rising dramatically. In June 2009, the system hit a new monthly high by paying out $78 million in benefits. The previous monthly high was $39 million in 2003. The state’s unemployment rate stood at 6.3 percent in December, up from 4.9 percent the previous year.

Colombo said her group is urging legislators to take steps to bring unemployment benefits back in line with reasonable contribution levels from businesses.

One proposal before legislators is to freeze the maximum weekly payment that people on unemployment would receive for two to three years. That would mean as inflation increases, the amount of payments to people on the system would not.

The Kansas Chamber is holding out hope that the Legislature will make some changes soon that will reduce the amount of payments that businesses must make by April 30.

Back at Checkers, Lewis is preparing to pay the full amount, but the increases have left him sour on the system.

“This is upside down,” Lewis said. “This is not what you should be doing to businesses at a time like this.”