As Hawai'i's unemployment rate continues to rise, so is the amount of money being withdrawn from the state's unemployment insurance fund to pay for a growing number of weekly benefits. But officials here say the $500 million fund remains sound and there is no reason to believe that it will reach a point where taxes would have to be raised to rebuild the account.

At the end of 2006, the unemployment insurance fund stood at $532 million, and the balance increased to $552 million by the end of 2007. Just 10 years earlier the fund's balance was just $200 million, according to the Department of Business, Economic Development and Tourism.

With unemployment rates at or below 3 percent, the state paid out about $90 million in benefits in 2006 and 2007. Unlike some other funds that can be tapped into by the Legislature, unemployment insurance money can only be used to pay out-of-work people and the fund continued to grow.

The Lingle administration and Legislature last year sought to slow the growth of the fund because it was placing a burden on businesses. On Jan. 1, a law was enacted that lowered the taxable wage base used to calculate what employers pay for unemployment insurance from $35,300 of an employee's gross pay to $13,000.

The move was expected to save businesses $151 million over the three-year period that the law is in effect and it encouraged owners to reinvest in their businesses and employees. In addition to helping businesses, the law also increased the maximum weekly unemployment benefits for employees from 70 percent to 75 percent of the worker's average weekly wage.

Despite the changes, the administration believed at the time that the fund had more than enough money to cover the state's annual unemployment expenses. The Department of Labor and Industrial Relations estimated the fund's balance would be more than $400 million in 2010, "barring any severe and unexpected economic downturn."

ECONOMY'S TOLL

Since that statement was made in May 2007, however, unemployment has risen from 2.5 percent to 4.2 percent this past August. The jobless rate is expected to worsen and reach 4.4 percent in 2009, according to a forecast by the University of Hawai'i Economic Research Organization.

Visitor arrivals have plummeted and a sagging economy has forced businesses to lay off thousands of workers so far this year. Weekly initial unemployment claims in September topped 8,000, nearly double the amount in the same month last year.

The rise in unemployment has impacted the fund, which dropped to $505 million in August. But Ryan Markham, Labor Department spokesman, said the fund is still higher than it needs to be.

Markham said the balance is not close to the "adequate reserve" level that could trigger adjustments to the taxable wage base. He said there "is no cause for concern" and officials believe the fund will be able to sustain itself.

"We're still looking to figure out what course of action we'll take, if any," Markham said. "We like to be proactive, but at the same time it's kind of a wait-and-see. If the economy continues, then we will have to do something. It's a little premature for us to say what we're going to be doing."

EMPLOYERS PAYING LESS

The taxable rate decrease was welcomed by most employers, who were expected to save up to $1,100 per employee each year. Tim Lyons, executive director of the Hawaii Business League, said it's too early to say whether the lower rates have helped because employers have only been making payments under the new schedule for nine months.

Lyons also said whatever savings realized could be going to pay for higher operating costs caused by rising fuel prices.

"It's possible that some of that could have been countered by the recent onslaught of financial concerns," he said.

Lyons said he hopes the fund will remain above the adequate reserve level so employers won't see an increase in their rates.

"There's just no reason for government to accumulate this," he said. "It's not like they can use it to finance improvements to a school or buy text books or even repair potholes. Why draw it out of the business community for no good reason?"