Organizations in more than 40 states whose unemployment funds were decimated by the recession—including Connecticut--are urging Congress to provide relief from damaging tax increases about to hit employers in order to pay back federal loans that have allowed the states to meet benefit obligations.

Under a deluge of jobless claims, Connecticut’s unemployment funds ran out earlier this year and the state was forced to borrow funds from the U.S. to keep paying the claims. So far, Connecticut has borrowed approximately $500 million from the U.S., and that total ultimately may approach $1 billion.

Federal law requires the states to start paying back interest of 4% on the loans, starting in 2011. But that will mean an additional tax on Connecticut employers already paying high unemployment costs.

The state’s unemployment compensation system is funded entirely by employers who pay taxes into the state UC Fund, and who are also responsible for paying benefits to claimants and repaying loans to the federal government.

Higher unemployment compensation costs make it much harder for employers to create and keep jobs. CBIA has joined a coalition of national and state business organizations in urging Congress to adopt legislation to prevent the job-killing, loan-repayment tax increases from taking effect. Specifically, the coalition is asking federal lawmakers to:

  • Extend the waiver of interest on loans to states to pay unemployment compensation through 2012—without a waiver, Connecticut employers will see even higher state taxes to cover this increased cost.
  • Waive Federal Unemployment Tax Act (FUTA) penalties, through 2012, on employers in states borrowing to pay unemployment compensation. Without a waiver, FUTA taxes on employer payroll in many states will increase by $2.5 billion for 2011 and a projected $3.0 billion for 35 states for 2012.

In addition, the groups are asking federal lawmakers to enact reforms to improve the integrity and fairness of the unemployment system.

Connecticut has lost more than 100,000 jobs since the recession began and the state’s unemployment rate remains at 9.1%. Unemployment tax rates are projected by the U.S. Department of Labor (USDOL) to increase by $11 billion from 2010 to 2011 and an additional $5 billion from 2011 to 2012.

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