Hawaii’s unemployment insurance fund is more than two-thirds of the way back up to adequacy after depletion during COVID-19’s economic shock in 2020, but the recovery is causing pain at an inopportune time for businesses paying into the fund.

The fund’s balance reached $366 million at the beginning of this month, up from $158 million about a year earlier and $214 million at the end of 2022.

The recent balance represents 69% of a $528 million sum deemed to be an adequate total for the fund this year.

Employers, which pay into the fund through a state tax on wages so that employees who get laid off can receive unemployment compensation, have generally been paying higher tax rates this year, which is helping rebuild the fund’s balance after rates were artificially kept down in each of the past two years.

Higher rates are stunning some business owners who wince about having to pay more unemployment insurance taxes when unemployment is relatively low and other costs are high from inflation.

“We could really appreciate some relief,” said Tom Jones, co-owner of the local Gyotaku Japanese Restaurants chain.

Jones said he’s paying higher food costs, higher rent and higher utility bills. Wages also have been driven up because it’s hard to find employees. “Everything’s high,” he said. “For us to have this right now, it’s very challenging. We’re really concerned about it.”

The higher unemployment tax rates went into effect at the beginning of this year, and businesses began paying the higher rates on their first quarterly assessment, which was due April 30.

The higher rates were set in December, triggered automatically by a formula based in part on fund contributions, withdrawals and the adequacy target.

This year the general tax rate rose two levels, from D to F on a scale from A to H. Each level has a range of rates that vary by employer depending on factors that include an employer’s wage levels and an employer’s unused contributions to the fund.

For instance, the tax rate on wages at level F is 1.2% to 6.2%. At level D the range is 0.2% to 5.8%.

The state Department of Labor and Industrial Relations, which administers the unemployment insurance program, estimated in an annual report filed in December that the average rate, as a percentage of taxable wages, would be 1.52% this year under level F, compared with 1.37% last year under level D.

That’s a relatively small change. But it can be bigger for businesses depending on the industry, their ratio of unused contributions to the fund and other factors.

Jones said that for some restaurants the increase can amount to tens of thousands, or hundreds of thousands, of dollars a year.

The Grassroot Institute of Hawaii recently urged Gov. Josh Green to have the Legislature, which adjourned in May, hold a special session to provide relief because businesses are slated to pay 46% more in unemployment insurance taxes this year.

“This tax increase is the last thing businesses need as they worry about their future and the possibility of a recession,” Keli‘i Akina, president and CEO of the organization, said in a statement.

According to DLIR, the 46% increase represents its estimate of growth in contributions to the fund this year, part of which is from growth in the labor market. Some of the increase also is due to an increase in the maximum wage subject to unemployment insurance tax, which rose this year to $56,900 from $51,600 in 2022.

DLIR in its December report estimated that the fund balance would rise to $415 million by the end of this year and trigger a decrease in 2024 rates by one level to E from F.

“The schedule will naturally come down,” said Bill Kunstman, DLIR’s deputy director. “The amount in the fund determines the tax schedule.”

Over the past three dec­ades, level F rates have been fairly uncommon, occurring only in 2011 and 2012. That period was followed by an increase to level G in 2013 before dropping to level E in 2014, then to level D in 2015.

Rates were at level C from 2016 to 2020, at which point pandemic-triggered shutdowns of tourism and many businesses helped drive the state’s unemployment rate to 12% in 2020 from 2.4% in 2019.

Paying an avalanche of unemployment claims triggered by job losses amid COVID-19 restrictions caused the fund’s balance to plummet from $601 million in 2019 to negative $646 million in 2020.

DLIR used federal loans, special federal unemployment coverage and unemployment tax contributions to pay out nearly $6.5 billion in unemployment benefits as Hawaii’s economy struggled during the worst of the pandemic.

The unemployment fund’s negative balance was reversed using federal aid, and ended 2021 at $119 million, though that was still far from an adequate level.

In 2021 the Legislature mandated level D rates for 2021 and 2022. The Legislature in 2022 suspended an element in the rate-setting formula that would have led to the adequate balance figure soaring above $1 billion and triggering inordinately higher rates.

No legislation was introduced this year to alter rates.

A lot of uncertainty exists over whether Hawaii’s economy will stay on its recovery path to a pre- pandemic level if the national economy slips into recession this year.

One forecast produced in May by the University of Hawaii Economic Research Organization expects continued growth in the state’s economy but a rise in the unemployment rate to 3.9% for all of this year from 3.5% in 2022, followed by a further rise to 4.2% in 2024.

The state Department of Business, Economic Development and Tourism offered a different view on unemployment in its own forecast published in May. DBEDT anticipates that the state’s unemployment rate will continue its downward trend, dropping to 3.0% this year, then to 2.8% in 2024.