Pass reforms to shore up unemployment
A n Associated Press story published in The Day this week caught our attention as a fine opportunity for Gov.-elect Ned Lamont to demonstrate his stated desire to improve Connecticut economically and fiscally with smart structural changes.
Rethinking how Connecticut government collects and spends tax dollars is Lamont’s stated method to address the $4 billion deficit for Connecticut in 2019 and 2020. Lamont takes office in January and must present a budget to the General Assembly before mid-February.
The AP story focused on a transition memo retiring Gov. Dannel P. Malloy asked each state agency to write for Lamont alerting him to the opportunities and challenges ahead.
The story highlighted the underfunded Unemployment Insurance Trust Fund reported in the Department of Labor transition memo. The memo warned that the fund, which presently amounts to $609 million, requires a $1.7 billion reserve to be sustainable through the next economic downturn.
The fund distributes about 25,000 checks weekly in a period of economic stability. That number swells by multiples during a recession. In 2009 the state was forced to borrow $1 billion from the federal government to continue paying unemployment checks. Repayment of that recession loan with interest was made between 2011 and 2015 from increased federal unemployment taxes on Connecticut businesses.
During that period, the federal unemployment tax went from an average of $42 per Connecticut employee to $189. Larger state unemployment taxes were levied on Connecticut companies that imposed layoffs during the recession.
The Unemployment Insurance Trust Fund had dwindled to $355 million reserves in 2017. Today, with a rebounding state economy, the fund has increased, but not enough. If the economic expansion — now in its seventh year — continues, the fund would correct itself and achieve its $1.7 billion reserve target without regulation reform or additional taxes levied.
However, some signs point to a possible economic slowdown. Lamont says Connecticut must be ready with structural spending changes now to prepare for the next downturn.
A plan long advocated by the Connecticut Business and Industry Association (CBIA) would partially achieve just that.
“We really want to hold the line on new taxes unless we see some of these structural changes that need to happen in order to ensure solvency,” Eric Gjede, vice president for government affairs for the Connecticut Business and Industry Association, told the AP. “We need to make long-term changes.”
The CBIA advocates reforming three components of the state unemployment system:
Raise the minimum earnings threshold to $3,000 to qualify for unemployment benefits. The threshold now for Connecticut claimants is $600 a year — the second-lowest earnings requirement in the country. That minimum threshold has not changed since the statute was created in 1968.
Prohibit unemployment benefits until those who lost their job have exhausted any severance pay. Workers who have lost jobs in Connecticut can now “double dip” and collect both unemployment and severance pay.
Freeze the maximum weekly benefit rate in any year the unemployment fund is less than 70 percent of the solvency goal. The maximum benefit currently increases an average of $18 every year.
CBIA estimates these three measures would add $70 million to the Unemployment Insurance Fund in the first year of the budget and an additional $93 million in 2020 without reducing benefits. Taking steps towards fully funding the Unemployment Insurance Trust would stabilize the system and avoid assessing additional taxes on the state’s businesses.
Gjede is a member of the Connecticut Employment Security Advisory Board, equally composed of business and labor leaders. He is advocating the advisory board recommend the unemployment system reform proposals next year.
These reforms have been proposed before. They have made their way out of the General Assembly’s Labor and Public Employees Committee but have never come up for a full vote.
Gjede said he is hopeful that the attention generated by the Labor Department transition memo and subsequent media coverage will increase the bill’s chances with the new legislature and administration. Lamont could apply the political muscle to move the reforms forward.
The CBIA proposals are good ideas that save money, maintain the level of compensation for the unemployed, stabilize taxes for businesses, and institute structural reforms that pay benefits for years.
Creative, thoughtful initiatives like these are precisely the type of structural improvements Ned Lamont says he wants. He should get behind this proposal and encourage General Assembly approval.