Historic’ Deal Reached on Unemployment System Reforms
The Lamont administration, employers, labor unions, and legislative leaders have reached agreement on a package of long-needed reforms to the state’s unemployment compensation system.
The reforms are designed to restore solvency to the Unemployment Compensation Trust Fund—insolvent for 48 of the past 50 years, burdening businesses with paying off federal government loans through higher taxes and assessments.
Gov. Ned Lamont said the reforms will bring benefits and eligibility requirements more in line with other states, while reducing taxes on 73% of Connecticut businesses by expanding the taxable wage base and reducing tax rates.
“A robust, sustainably funded unemployment insurance system is Connecticut’s most important tool for keeping our families out of poverty and our economy in motion during a recession,” Lamont said an April 20 press conference announcing the agreement.
“I appreciate legislators and stakeholders working together to develop a common path forward on this critical issue.”
$1 Billion-Plus Debt
The governor said that had these reforms been in place after the 2008-2010 recession, Connecticut would have started the pandemic with a solvent trust fund. Instead, the state will likely borrow more than $1 billion to cover benefit claims.
Connecticut borrowed $1.25 billion after the last recession, a debt that took six years to repay, including $85 million in interest. At one point, Connecticut employers were paying four times the unemployment taxes of other states to cover that debt.
CBIA president and CEO Chris DiPentima called the package of unemployment compensation system reforms “historic,” noting the potential long-term benefits for the state’s economy.
“This package represents the most significant set of reforms in the history of the state’s unemployment system,” DiPentima said.
“Many of the changes represent reforms CBIA has advocated for since the end of the last recession to address one of the business community’s top concerns—the need for more predictable, certain, and stable policies.
“Such comprehensive reforms show what we can accomplish when the public and private sectors collaborate and develop solutions that benefit all.”
The following reforms would take effect in 2024:
- Raise the taxable wage base from $15,000 to $25,000, then index it to inflation
- Reduce the maximum solvency tax rate from 1.4% to 1%
- Reduce the minimum and expand the maximum experience tax rate, from 0.5-5.4% to 0.1-10%
- Increase the minimum base period earnings required to qualify for unemployment benefits from $600 to $1,600, then index it to inflation, except when the federal government is providing additional benefits to UI claimants
- Freeze the maximum weekly benefit amount for four years
- Defer unemployment insurance benefits until a claimant’s severance payments are exhausted
The agreement also reduces the maximum solvency tax rate during recessions, reduces experience tax rate increases caused by sector-wide economic impacts, does not charge businesses for benefits paid through the Department of Labor’s Shared Work program during and immediately after recessions, and defines each day of absence without either good cause or notice to the employer as a separate absence.
DiPentima said the reforms represented one of the major policy recommendations in CBIA’s Rebuilding Connecticut pledge, a package of policy priorities supported by a bipartisan group of 55 legislators and designed to drive the state’s post-pandemic economy recovery and job growth.
“Connecticut’s employers are the sole revenue source for the Unemployment Compensation Trust Fund, and it was critical that the business community’s voice was included in developing these reforms,” he said.
“We’ve made some compromises, as others have done also. Connecticut is adopting many of the best practices of other states and will be more aligned with the rest of the country rather than being an outlier.
“We need to continue this momentum and rebuild Connecticut by addressing other major issues this legislative session—including leveraging federal relief funds to resolve the unemployment fund debt crisis, the slew of costly workplace mandates under consideration, the expansion of workers’ compensation liability, and any number of proposed tax hikes.”
State Department of Labor Commissioner Kurt Westby told the April 20 press conference that “creating long-term viability in the trust fund is an important reform.”
“It will help stabilize businesses and reduce the financial uncertainty that hinders economic growth and hiring. Ultimately, this strengthens our workforce and prevents continued tax hikes on our business community.”
The agreement does not address the potential billion dollar-plus unemployment fund debt employers face because of the pandemic and DiPentima said he is hopeful the General Assembly will use federal coronavirus relief funds to resolve that debt.
Lawmakers and labor union leaders echoed their support for the reform agreement, with Dave Roche, president president of the Connecticut State Building and Construction Trades Council and general vice president of the Connecticut AFL-CIO, calling the reforms “long overdue.”
“I’m encouraged by the compromise we were able to reach that will help to ensure the solvency of the unemployment trust fund,” he said.
House Majority Leader Jason Rojas (D-East Hartford) said the reforms create “a more resilient unemployment insurance trust fund that can endure future recessions.”
“For Connecticut to move forward from the current economic crisis and build a more sustainable future, we must pave avenues that kickstart the state’s recovery and facilitate an economy where businesses and families can thrive,” he said.
House Republican Leader Vincent Candelora (R-North Branford) called the agreement “a meaningful step toward creating long-term stability in our unemployment compensation fund while easing associated cost burdens for businesses”
“That advocates for the business community had a seat at the negotiating table is significant, and I’m hopeful the spirit of collaboration that led us to this point will fuel additional conversation about action we can take together to create a more competitive business climate,” he said.
Rep. Sean Scanlon (D-Branford), co-chair of the Finance Committee, said “the timing was right to strengthen and reform the system so that it’s not only solvent for the first time in a long time but also more affordable for the majority of businesses in Connecticut.”
Finance Committee ranking member Rep. Holly Cheeseman (R-Niantic) said “compromise was required by all sides and as a result, we have a path to creating a solvent Unemployment Insurance Trust Fund for the first time in decades.”
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