Lawmakers still have the opportunity to reform the state’s unemployment compensation system, make it stronger for the next downturn, and help employers drive economic recovery.
And they can do it without costing state taxpayers a dime.
Connecticut employers have continued to see their unemployment taxes increase over the past five years because of the impact of the recession that ended in 2009.
The state had to take a nearly $1 billion loan from the federal government to shore up the state's Unemployment Compensation Trust Fund after it drained during the height of the recession. And for every year the debt isn’t repaid, interest increases.
On top of that, in addition to yearly federal unemployment tax rate increases, businesses in the state have also had to pay additional special assessments each August 1 to cover the interest on the federal loan.
In 2015, Connecticut had the highest federal unemployment tax burden in the country: $161 per employee--nearly four times higher than what Massachusetts pays per employee ($42 per employee, the rate in all states without an outstanding loan from the U.S. ).
This will continue to increase and set us further apart from other states until Connecticut repays its loan in entirety–not projected until 2017 at the earliest.
Why do Connecticut employers pay four times more than an employer in Massachusetts? Because we have long refused to make the same unemployment benefit reforms that other states have had the courage to make.
This year, the Labor Committee held a public hearing on HB 5851, which would have made five simple reforms to the unemployment compensation system:
1. Require claimants to wait a week before receiving unemployment benefits. The U.S. provides financial incentives for states to adopt a waiting week. Forty-one states have this requirement; Connecticut does not, but it would save businesses $30 million a year.
2. Raise to $2,000 the minimum earnings to qualify for unemployment benefits. An unemployment claimant in Connecticut need only earn $600 to qualify for benefits-- the fourth lowest earnings requirement in the U.S. Thirty-two states/territories require between $2,000 and $5,000 in earnings.
3. Require claimants to post a resume online as a condition to receiving benefits after six consecutive weeks. Rhode Island recently instituted this reform, which was already a requirement in Alaska, Hawaii, and Wisconsin. Studies show this type of requirement gets unemployed individuals back to work an average of one week faster.
4. Base benefits on an employee's annual salary, rather than two highest quarters, to avoid unfairly rewarding seasonal workers. Unemployment benefits are based on earnings in the two highest of the last four calendar quarters. This creates inequities, as a seasonal worker making $30,000 over two quarters has the same benefits as a full-year employee earning $60,000 a year. 16 states take into account an employee's full year's salary for benefit calculations.
5. Freeze 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 Connecticut employers as much as $10 million per year over the next 10 years.
These reforms could be added as amendments to other bills. Will lawmakers do the right thing and give the state the economic boost that reforms would provide? Or will the state Labor Department work against the reforms unless they are accompanied by a tax increase?
Connecticut businesses are unnecessarily suffering under the weight of unemployment compensation tax burden. Will legislators make the reforms needed to help businesses? We will know by June 4, after the legislature adjourns.