Unemployment tax hits businesses hard

Connecticut’s failure to quickly pay back loans for unemployment benefits handed out during the height of the Great Recession is costing state businesses millions of dollars in special federal assessments this year.

According to the website bna. com, Connecticut is paying the highest Federal Unemployment Taxes in the country — for the second year in a row. The tax of up to $189 per employee is significantly above last year’s level and $ 147 above what most states are paying.

Only California, Ohio and the U.S. Virgin Islands will be paying higher-than-usual special assessments this year based on taxes on wages paid to employees in 2015.

“It does hurt,” said Tony Sheridan, president of the Chamber of Commerce of Eastern Connecticut. “It’s a huge increase that was entirely unexpected.”

The state Department of Labor said it could not immediately estimate Friday the total assessment costs on Connecticut businesses this year. But with a labor force of about 1.7 million, the cost is likely in the tens of millions of dollars.

Sheridan said the biggest problem was the unpredictability of the extra costs. He blamed the Labor Department for not doing a good enough job of communication and said businesses in eastern Connecticut are hit particularly hard because they are still struggling to get out of the economic doldrums and recover jobs.

The Labor Department said it is not authorized to communicate about the unemployment tax increase because it is a federal program.

Eric Gjede, assistant counsel to the Connecticut Business & Industry Association, said the state unemployment compensation trust fund wasn’t in good shape at the beginning of the recession and that the lengthened benefit times and increased unemployment numbers only made matters worse.

“This is a result of the state failing

“It certainly seems we have to change the fiscal environment here in Connecticut at almost every level,”

to make benefit reforms,” Gjede said.

The state, for instance, pays benefits to workers who make as little as $600 annually, while most states require wages totaling at least $2,000 to get unemployment, he said. About a half dozen states have an even higher threshold of up to $5,000 to get benefits, he added.

“It’s little things like this we’ve ignored,” Gjede said.

Gjede said other states have been a lot better stewards of their unemployment funds, understanding that businesses will be blindsided by such unexpected costs, possibly reducing jobs and investments in plant and equipment. The extra assessments that Connecticut businesses are being required to pay, including a $ 28 increase per employee this year, amount to four times what enterprises in neighboring states are paying, he pointed out.

“It’s unbelievable, and it’s killing our businesses,” he said.

Gjede said this is expected to be the final year for extra federal assessments related to the unemployment fund, but there has been talk on the state level about possibly adding a permanent tax to shore up Connecticut’s unemployment coffers. CBIA is hoping that Gov. Dannel P. Malloy sticks to his no-new-taxes pledge and nixes this idea, he said.

State Sen. Paul Formica, R- East Lyme, said the state borrowed about $1 billion to pay for extra unemployment costs during the recession. Connecticut could have mitigated the impact on businesses by requesting a waiver from the federal government, but failed to do so, he said.

The Labor Department said the decision not to request a waiver was based on the fact that the only effect would have been to stretch out the loan period and increase businesses’ assessment to $210 per full-time employee next time around.

“Employers are paying more now to pay less later,” Labor Department spokeswoman Nancy Steffens said in an email.

Formica, however, agreed that the state should look at unemployment-compensation reform to reduce costs and minimize the impact on businesses.

“It certainly seems we have to change the fiscal environment here in Connecticut at almost every level,” said Formica, a member of the legislature’s newly appointed Efficiency Planning Task Force. “It’s a nightmare for businesses to come up with that kind of money during the slowest months of the year.”

STATE SEN. PAUL FORMICA, R-EAST LYME