Committee approves revenue‑neutral shift to raise administrative fee for reemployment assistance

The House Committee on Appropriations recommended Senate Bill 26, a revenue‑neutral proposal that reduces employer contributions to the Unemployment Insurance Trust Fund by $3 million and increases the administrative fee employers pay by $3 million to fund operations of the Reemployment Assistance Division.

Marsha Holtman, Cabinet Secretary for the Department of Labor and Regulation, told the committee the state’s trust fund is solvent but federal law restricts trust funds to benefit payments, so administrative costs must be funded separately. She said federal funding for program administration has declined from $5.5 million in 2021 to $4.9 million in 2024 while operating costs rose, and without the fee change the agency would need to cut roughly one third of staff from 76 to 51 employees. “Without the passage of this bill, we will need to reduce our staff by one third,” Holtman said.

Holtman and business groups framed the bill as avoiding a far larger federal penalty. She described the federal FUTA (Federal Unemployment Tax Act) credit that currently reduces employers’ federal tax rate; if state performance declined the state could lose that credit and employers could face a much larger FUTA liability—Holtman quantified a potential $183 million annual increase for employers if the state lost the credit. The bill’s $3 million swap would instead increase the administrative fee from 0.02% to 0.08% (raising the per‑employee cap from $3 to $12), while lowering other contribution rates so the net effect on total employer payments is neutral as described.

Business and industry groups including the South Dakota Retailers Association, the South Dakota Chamber of Commerce and Industry, Associated General Contractors and others testified in support. Nathan Sanderson of the Retailers Association and David Owen of the Chamber said the proposal protects employers from a larger federal tax exposure while preserving program operations. The bill’s supporters said the change was considered and vetted by the Reemployment Assistance Advisory Council.

Representative Kolbeck moved a do‑pass recommendation; the committee voted by recorded roll call with seven votes in favor and two excused and the chair declared the motion carried. Supporters said the change should maintain program staffing and compliance with federal performance metrics while shifting $3 million of funding from employer contributions to the administrative fee.