Just when Connecticut employers were about to get some relief from the sky-high unemployment costs they’ve been paying for years in the wake of the Great Recession, the state Department of Labor wants to increase those costs.
DOL’s aim is to shore up the state’s Unemployment Compensation Trust Fund so that it doesn’t again empty out in times of economic crisis, but employers say that hiking taxes isn’t the way to do it.
While next January, Connecticut will have repaid its nearly $1 billion loan from the federal government to replenish the state’s Unemployment Compensation Trust Fund after it was drained at the height of the Great Recession, repaying that loan came with a big cost to the state’s businesses, which covered the entire cost, including interest.
By Jan. 2017, federal unemployment tax rates will return to pre-recession levels.
Now, DOL has asked Gov. Malloy to give them permission to seek new increases to build up a large reserve in the Trust Fund.
It’s still not certain whether DOL will get that go-ahead.
While DOL is also open to minor benefit reforms, it hasn’t yet proposed the kind of structural, systemic changes that would make a significant difference.
The core problem isn’t how much money the unemployment system is taking in, but how much is being paid out in benefits.
For example, all of our surrounding states (except Rhode Island) take in virtually the same amount in unemployment taxes, but they’ve fully repaid their federal debt long ago and are building healthy reserves.
How? Through benefits reforms.
That’s why CBIA and the business community are urging policymakers to pursue the same benefit reforms our competitor states have already made, such as.
- Raising 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.
- Requiring 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.
- Basing 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.
- Freezing 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 neighboring states—especially important given that the governor and many lawmakers have shown renewed focus on the state’s economic competitiveness.