Building Too Much in UC Reserve?

Reacting to the recession and how it drained Connecticut’s Unemployment Compensation Trust Fund, a proposal in the Labor Committee would almost double the fund’s reserve goal to $1.1 billion from its current level of $625 million. 

Building a bigger reserve might sound like a good idea, but it could actually hurt the state, its businesses and their employees. That’s because it would drain desperately needed capital out of the state’s economy. 

Currently, the fund’s reserve goal is set at 0.8% of total payroll for all Connecticut employers, which is roughly $625 million.  Under SB 988, however, the reserve goal would increase significantly using the Average High Cost Multiple (AHCM) formula of one percent versus 0.8%.

AHCM would require the reserve goal to be based on the three highest years of unemployment benefit payouts over the last 20-year period. If the reserve goal is raised this way—in this case, based on the state’s poorest economic conditions in generations–then vital capital will be taken away from Connecticut businesses and economy.

The Trust Fund is funded entirely by Connecticut employers who are now paying $70 million extra in interest payments and penalties for borrowing federal funds to keep paying claims. It is money well and necessarily spent to bring the Fund back to solvency.

However, it is also $70 million that’s not going to investing in jobs, training, new products and services—in general, it’s not boosting the economy. If SB 988 were to pass, it would eventually drain more resources away for a situation that may not occur again for yet more generations.

More important would be to better define who is eligible, and when, for benefits. CBIA and others offered suggestions for improving the unemployment comp system, for example by strengthening measures to guard against and detect fraud.

For more information, contact CBIA’s Kia Murrell at 860.244.1931 or kia.murrell@cbia.com.