Oregon Employment Department seeks larger diversion to administrators' fund to avoid $33M cuts

Senate Committee on Finance and Revenue members heard testimony May 19 on Senate Bill 143, Dash 2, which would increase the share of unemployment insurance payroll taxes diverted into the supplemental employment department administrative fund (CDAF) from 0.109% to 0.135% for quarters beginning April 1, 2025, and would change how unused CDAF money reverts to the Unemployment Compensation Trust Fund.

The amendment would also alter the reversion formula so that, instead of comparing the CDAF balance to prior first-quarter collections, the statute would cap CDAF at a set number of months of the department’s most recently legislatively approved biennial budget (the amendment proposes three months); any amount over that cap would transfer to the trust fund for the biennium ending on or after June 30, 2025.

The change is intended to let the Employment Department use more withheld payroll taxes for administrative purposes when federal administrative grants are insufficient. David Gerstenfeld, director of the Oregon Employment Department, told the committee the department needs the change to avoid a sizeable cut package.

"If there is no new revenue we will need to implement a cut package," Gerstenfeld said. He told senators the package would be about $33,000,000 and would mean "about 72 fewer positions" than the governor's recommended budget and the closure of a WorkSource Oregon office, changes he said would reduce customer service.

Gerstenfeld said CDAF exists because federal funding to administer unemployment and related programs is inadequate, and that federal law ‘‘very strictly limits what [trust fund] money can be used for, basically just to pay the benefits themselves not for doing the administrative work necessary to get those payments to people.’’ He said the department's projections indicate the proposed diversion rate and reversion change would not push Oregon into a higher statutory tax schedule during the department's projection horizon.

Anthony Castaneda, testifying for SEIU 503, said the union represents about 1,500 Employment Department workers and supported the amendment. "An increase in the CDAF diversion would avoid major cuts as described by the director," Castaneda said, adding that staffing reductions would reduce customer service and raise fraud risk. He noted staff help nearly 75,000 job seekers a year and work with roughly 7,000 employers.

Committee members asked clarifying questions about who pays into CDAF and whether reimbursing employers (for example many school districts that reimburse dollar-for-dollar rather than pay payroll taxes) are affected. Gerstenfeld explained CDAF is a diversion from payroll-tax–paying employers; reimbursing employers do not pay the payroll tax and so the CDAF diversion does not apply to them.

No final committee vote on Senate Bill 143 occurred at the hearing; the session was a public hearing with department and stakeholder testimony. Senators did not take formal action on the amendment during the May 19 meeting.

The committee received a mix of material from the department and labor representatives explaining the operational consequences of funding shortfalls and the protective mechanisms in the existing CDAF statute. The department emphasized two safeguards: (1) unused CDAF money automatically reverts to the Unemployment Compensation Trust Fund under the statute, and (2) legislative approval is required to spend CDAF funds for administrative purposes.

Next steps: the public hearing was closed; committee staff indicated legislative fiscal analysts (LFO) will incorporate the amendment into their work ahead of a scheduled work session on the bill.