Unemployment Reforms Pay Early Dividends

Connecticut employers will be spared federal unemployment tax hikes and special assessments for a third consecutive year in 2025.

The Lamont administration announced this week that the state’s Unemployment Trust Fund repaid $215 million in federal loans prior to the Nov. 10 deadline.

Last year, the state also paid off $1.2 billion borrowed from the federal government to pay pandemic-related unemployment claims, saving businesses an estimated $30 million in additional taxes.

Connecticut employers are solely responsible for funding unemployment benefits through state payroll taxes—and for paying off federal loans when the fund is insolvent.

“Stabilizing this fund has been a priority for our administration and has helped employers save millions of dollars in federal unemployment taxes and special assessments,” Gov. Ned Lamont said in a statement.

“Over the last several years and in partnership with the legislature, we’ve worked to build predictability into the system so employers know what’s ahead and can hire and grow.”

Reforms

Solvency was a perennial issue for the fund, with CBIA leading business community advocacy efforts that resulted in long-awaited reforms that the state legislature adopted in 2022.

The wide-ranging reform package stemmed from negotiations between the business community, organized labor, the Lamont administration, and a bipartisan group of lawmakers. 

The legislature’s nonpartisan Office of Fiscal Analysis projected that the reforms, which took effect Jan. 1 this year, will save the unemployment fund $84.25 million annually while generating $130.9 million in new yearly revenues.

“We are now have a sustainable path to reaching that $1.6 billion solvency target for the unemployment fund.”

CBIA’s Chris DiPentima

While the state will need to continue taking out federal loans over the next few years to maintain unemployment benefits, long-term fund solvency is now a viable goal.

“Because of these reforms, we now have a sustainable path to reaching that $1.6 billion solvency target for the unemployment fund,” CBIA president and CEO Chris DiPentima said.

“Achieving and maintaining solvency is critical as it will end the constant threat of unemployment tax hikes and allow employers to invest that capital in areas that will grow jobs and the economy.”

Loan Costs

Connecticut lost a historic 291,100 jobs to pandemic-related closures and restrictions in March and April of 2020, further stressing an already unstable trust fund and forcing the state to borrow $1.2 billion from the federal government.

CBIA’s advocacy efforts, which included calling for the use of federal pandemic relief funds to offset loan repayment costs, helped avoid crippling FUTA increases and special assessments on employers.

CBIA’s advocacy efforts helped avoid crippling FUTA increases and special assessments on employers.

Lawmakers appropriated $155 million during the 2021 session, directing $125 million to the loan balance with $30 million used to prepay interest and avoid assessments.

In 2022, the legislature appropriated $40 million to temporarily reduce state unemployment taxes by 0.2%, mitigating federal tax increases.

“The unemployment reforms and use of federal pandemic funds to offset additional taxes on employers showed what we can accomplish when the public and private sectors collaborate and develop solutions that benefit all,” DiPentima said.