The Great Recession’s impact forced Connecticut to borrow nearly $1 billion to shore up the state’s Unemployment Compensation Trust Fund. That borrowing has come back to hit businesses—the sole funders of this critically important safety net—with escalating taxes and assessments in order to repay the loan.
While the legislature has a proposal to provide Connecticut businesses some unemployment comp tax relief, lawmakers should still seek reform system reforms to ensure its integrity and reduce costs for business over the long-term.
Some Relief in Sight
House Republicans have succeeded in getting a public hearing on a bill to help businesses struggling with higher unemployment taxes.
HB 5314 will apply an estimated $60 million of the projected state budget surplus to pay a portion of the interest owed on the federal debt. This would help businesses get back on their feet by removing some of the burden for repaying the debt to the federal government.
A public hearing on HB 5314 is scheduled for 2pm on Tuesday, March 11. For more information about supporting this measure, please contact CBIA’s Eric Gjede at 860.244.1931 or email@example.com for more information.
How It Works
Usually, a business’s unemployment compensation payment is composed of its experience rate (based on how many employees were laid off during the previous year), plus state and federal taxes.
However, for every year that the federal loan debt is outstanding, a business’s federal tax rate is increased by an additional 0.3%. Connecticut is one of several states that have an outstanding balance owed for four years. So, each Jan. 1, when the unemployment compensation bills are sent, many businesses--even those that did not layoff an employee--are surprised to find an unemployment compensation bill that’s higher by thousands of dollars.
And this hefty bill is in addition to the special assessment they receive each July 1-- which in 2013 was an additional $15 per employee. Getting hit with an escalating tax bill and special assessment year after year is taking its toll on the businesses community.
The state Labor Department believes the federal loan debt won’t be repaid until 2016, meaning businesses still have more years of huge unemployment tax increases and special assessments before things return to normal.
Long Term Solution Needed
Help with the federal loan debt now, with HB 5314 will be a big help to Connecticut businesses, but even better for the long-term would be reform of the system’s benefit structure.
Connecticut has one of the highest unemployment benefit rates in the country, and the fund solvency has required adjusting over the past few years to (barely) keep up.
Some proposals would make positive changes to the system, including:
SB 243 proposes to change, from $500 to $2,000, an employee’s base period for initially qualifying for unemployment compensation with a new business, which would allow businesses to test new employees to see if they are a good fit without becoming part of their base period.
It would also make ineligible for unemployment benefits commercial drivers who cannot perform their job because they lost their CDL license as a result of drunk driving, and create a task force to look at the methods the labor department uses to verify unemployment benefit claimants work search efforts.
SB 320 prevents the Labor Department from waiving the requirement of unemployment comp claimants to repay overpayments of benefits they received in error. It also looks at various measures to streamline the unemployment compensation filing system through adopting a new computerized filing system.
Not Learning Our Lesson
However, interest groups that represent unemployment claimants are ignoring the fiscal realities and pushing for higher unemployment compensation taxes for businesses.
HB 5452 would allow unemployment claimants to continue to receive benefits while performing community service in lieu of searching for a new job. This would encourage people to remain unemployed for longer periods of time rather than look for new work.
Unemployment comp is a topic of renewed interest to lawmakers. Given the huge debt for repayment of the federal loan faced by businesses , and the persistence of certain groups to increase taxes on business, the debate is likely to come to a head in the near future.