Unemployment Compensation Reform Savings Exceed Initial Projections
A bill making long overdue reforms to the state’s unemployment compensation system is projected to have larger than anticipated savings for the Unemployment Trust Fund.
The legislature’s nonpartisan Office of Fiscal Analysis now estimates the reforms outlined in HB 6461 would save the fund approximately $114 million in the first year, and approximately $152 million in subsequent years.
That’s far above the initial projections of roughly $130 million in annual savings from four specific unemployment reforms.
The fund’s problems date to the 2008-2010 recession, when Connecticut employers experienced large numbers of layoffs, forcing more workers onto the unemployment rolls.
Unfortunately, Connecticut’s Unemployment Trust Fund, which every employer in the state pays into via a per-employee tax, quickly became insolvent.
That forced the state to borrow almost $1 billion from the federal government on behalf of Connecticut employers to restore the fund’s solvency.
But in order to pay off the loan, Connecticut employers saw their unemployment tax soar from around $42 per worker to an astonishing $189.
The loan has since been paid and the tax reduced, and now CBIA and its members support specific, prudent reforms designed to build the fund’s solvency and prevent it from going into the red again.
HB 6461 makes a number of overdue reforms to the state’s unemployment system, including:
- Raising the minimum earnings threshold to qualify for unemployment benefits to $2,000. Claimants in Connecticut need only earn $600 in a year to qualify for benefits—the second-lowest earnings requirement in the U.S. For perspective, 32 states and territories require between $2,000 and $5,000 in earnings. Connecticut’s earnings requirement has not changed since the statute went into effect 50 years ago.
- Prohibiting all claimants from receiving unemployment benefits until they have exhausted their severance pay.
- Basing benefits on three quarters of an employee’s earnings rather than two highest quarters, to avoid inequitably rewarding seasonal workers. Under current law, a seasonal worker in Connecticut earning $30,000 over two calendar quarters gets the same unemployment benefits as a full-time worker who earns $60,000 over four quarters.
- Freezing the maximum weekly benefit rate any year we have not attained 70% of the fund’s solvency goal. The maximum benefit rate is allowed to increase by $18 every year, and did increase throughout the recession. Foregoing increases in years when the fund is unhealthy would prevent the problem from getting worse.
The true winner with the passage of this bill is the state's unemployment compensation safety net.
If the state’s fund solvency goal of $1 billion dollars is reached—something that’s not projected to happen until after 2020—the business community may see a slight drop in unemployment taxes, provided there’s no economic downturn before then.
So while Connecticut businesses support of the bill, they have little to gain financially. The money saved is not returned to the business community.
Instead, it’s used to beef up the trust fund for use by future workers who become unemployed, preventing future borrowing to shore up the trust fund.
Unfortunately, that is not how the state Department of Labor sees it.
The department is opposed to the bill—which the Labor and Public Employees Committee passed unanimously—and is urging legislators to adopt a broader approach toward fund solvency that includes tax increases.
The department argued in its testimony, and in recent meetings with lawmakers, that any benefit reform should be accompanied by an increase in state unemployment taxes.
They want to increase the taxes each employer pays per worker, but Connecticut businesses have paid higher state unemployment taxes than most of our neighboring states for years.
Connecticut businesses have paid taxes based on the first $15,000 of an employer’s salary since 1999.
Neighboring states, including Massachusetts and New Hampshire, just recently caught up to Connecticut’s taxable wage base, and New York employers only pay taxes on the first $10,700 of employee wages.
In other words, Connecticut employers have already been paying higher taxes, illustrating the urgent need for reforms included in HB 6461.
The bill is waiting action in the House of Representatives.
Lawmakers should understand that the true winner with the passage of this bill is the unemployment compensation safety net.
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