HARTFORD — Gov. Ned Lamont, legislative leaders, the Connecticut AFL-CIO and the Connecticut Business & Industry Association have announced details of a bipartisan proposal to restore the Unemployment Insurance Trust Fund and reduce taxes on the majority of Connecticut businesses.
The state’s Unemployment Insurance Trust Fund has been insolvent for 48 of the last 50 years, forcing Connecticut to borrow money from the federal government during economic downtowns.
During the Great Recession, Connecticut borrowed $1.25 billion from Washington, a debt repaid with $85 million in interest over the next six years. During the current recession, Connecticut has borrowed $712 million and counting, another debt it will repay with interest as the economy struggles to recover.
Today’s bipartisan proposal will prevent that story from repeating yet again, state leaders said.
It restores trust fund solvency and reduces taxes on at least 73% of businesses by broadening the taxable wage base, reducing tax rates and reforming benefits.
Specifically, starting in 2024, the proposal: Increases the taxable wage base from $15,000 to $25,000, then indexes it to inflation; reduces the maximum solvency tax rate from 1.4% to 1%; reduces the minimum and expands the maximum experience tax rate, from 0.5-5.4% to 0.1-10%; increases the minimum base period earnings required to qualify for unemployment benefits from $600 to $1,600, then indexes it to inflation, except when the federal government is providing additional benefits to UI claimants; delays four annual $18 increases in the maximum weekly benefit amount, and defers UI benefits until the end of any severance payments for all employees.
Those changes align the state’s UI taxes and benefits with neighboring states and corrects for decades of erosion in the real value of dollar amounts that had not been indexed to inflation. Had the proposed reforms been in place after the last recession, Connecticut would have started the pandemic with a solvent trust fund.
“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,” Gov. Lamont said.
“I appreciate legislators and stakeholders working together to develop a common path forward on this critical issue.”
“Creating long-term viability in the trust fund is an important reform,” Connecticut Labor Commissioner Kurt Westby said. “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.”
“These reforms are long overdue,” Dave Roche, president of the Connecticut State Building and Construction Trades Council and general vice president of the Connecticut AFL-CIO, said. “In the land of steady habits, I’m encouraged by the compromise we were able to reach that will help to ensure the solvency of the unemployment trust fund.
“Over and over again, workers across this state have demonstrated their willingness to engage in good faith discussions to reach solutions. And throughout the pandemic, too many have had to rely on unemployment benefits as they lost their jobs through no fault of their own. Working people need the economic supports provided by unemployment benefits and a budget that addresses the unmet needs for healthcare, housing, and tax relief.”
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,” Mr. 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.”
“Workers who lose their jobs need to be able to count on unemployment benefits to sustain them until they’re reemployed,” Sue Garten, managing attorney of Greater Hartford Legal Aid and a member of the state’s Employment Security Advisory Board, said.
“A solvent trust fund reduces pressure to cut unemployment benefits when workers need them most.”
The bipartisan proposal also includes recession recovery measures based on lessons learned from the Covid-19 pandemic. Specifically, it: Reduces the maximum solvency tax rate during recessions to limit tax increases on a fragile economy; reduces experience tax rate increases when those increases are due to sector-wide economic shocks, rather than individual firm behavior, and noncharges employers during and immediately after recessions for benefits paid out through the Department of Labor’s Shared Work program, which helps employers manage business cycles without laying off employees.
Finally, it defines each day of absence without either good cause or notice to the employer as a separate absence. The current definition includes one day or two consecutive days.
Connecticut’s unemployment insurance system is funded through three taxes. The heart of the program is a state-level, experience-rated tax set for each employer based on the amount of benefits drawn by that employer’s former employees.
The experience tax is augmented, as needed to maintain fund balance, by a state-level, economy-wide solvency tax. Finally, the federal government collects taxes to pay for program administration and to recoup any federal loans.
All of those taxes are levied not against total payroll, but against a taxable wage base: the first $15,000 an employer pays an employee on Connecticut’s side; the first $7,000 an employer pays an employee on the federal one.
Because those bases are not indexed to inflation and have not increased in several decades, their real dollar value has declined steadily and significantly over time.
The percent of total wages subject to UI taxes has declined with them, to a record low of 22.9%.
Allowing most wages to escape unemployment taxes threatens fund solvency, reduces the power of the experience rating system, and disproportionately burdens small businesses and working families.
Reducing the power of the experience rating system prevents unemployment insurance from functioning like an insurance product whose premiums are predictably related to utilization, allowing a small number of businesses to pay less than they owe, and forcing two-thirds of Connecticut employers to pay more than they should.