In Jan. 2017, Connecticut will have repaid its nearly $1 billion loan from the federal government to shore up the state’s Unemployment Compensation Trust Fund after it was drained at the height of the Great Recession.

Repaying that loan didn’t happen without a big cost to the state’s businesses, who covered the entire cost, including interest.

By Jan. 2017, federal unemployment tax rates will return to pre-recession levels.

State Tax Increases Looming?

But just when relief is in sight, the state Department of Labor has proposed increasing state unemployment taxes. The agency has requested permission to seek the increases, but it is unclear if the governor supports the move.

The goal, they argue, is to build up a large reserve in the Unemployment Compensation Trust Fund to guard against the Fund becoming insolvent in times of high unemployment.

It’s critical that the goals of different areas of state government aren’t at odds.
The DOL is also open to minor benefit reforms, but has not proposed the kind of structural changes to the benefits system that would make a significant difference.

What the advocates of tax increases fail to recognize, however, is that the core problem with Connecticut’s unemployment system is not how much money it’s taking in but how much is being paid out in benefits.

“This problem is readily apparent by looking at a map,” says Eric Gjede, CBIA assistant counsel and unemployment policy analyst.

“All of our surrounding states, except for Rhode Island, take in virtually the same amount in unemployment tax, yet all of those states repaid their federal debt long ago and are building their reserves.”

These states have made reforms to their benefits systems that have contributed to the health of their unemployment trust funds.

Positive Reforms

Rather than making Connecticut less competitive by further increasing the unemployment tax burden on our businesses, CBIA and the business community are urging policymakers to pursue the same benefit reforms our competitor states have already made.

Reforms the state should be seeking include:

  • Raise the minimum earnings to qualify for unemployment benefits to $2,000. An unemployment claimant in Connecticut need only earn $600 in a year to qualify for benefits—the third lowest earnings requirement in the U.S. For perspective, 32 states/territories require between $2,000 and $5,000 in earnings.
  • Require claimants to post their resumes online as a condition of receiving benefits after six consecutive weeks. Rhode Island recently instituted this reform. Studies show this type of requirement gets unemployed individuals back to work faster.
  • Base benefits on an employee’s annual salary, rather than two highest quarters, to avoid unfairly rewarding seasonal workers. Sixteen states base employees’ benefits on a full year’s salary.
  • Freeze the maximum weekly benefit rate for three years. The maximum benefit rate is allowed to increase by $18 every year. Freezing this for three years, could save as much as $10 million per year.

“Policymakers can improve Connecticut’s competitiveness simply by putting our unemployment system’s benefits back on par with our neighboring states,” says Gjede.

“That’s especially important given that the governor and many lawmakers have shown renewed focus on the state’s economic competitiveness.

“It’s critical that the goals of different areas of state government aren’t at odds.”