The math doesn’t work on paid leave

Connecticut received more than 5,655 paid-leave benefit applications in December, ahead of the Jan. 1 start date for granting paid family and medical leave for eligible private-sector employees under a new state mandate.

That rush to apply for benefits has renewed fears about the paid-leave program’s long-term viability and the ability of small businesses to manage the state’s latest workplace mandate.

“I don’t want to minimize the impact on small employers who’ve never done this before, but it’s not going to feel like it’s just a switch for them,” Andrea Barton Reeves, CEO of Connecticut’s Paid Leave Authority, told an employer conference put on by the Connecticut Business & Industry Association in 2020. “For smaller employers, this is an entirely new world.”

The paid-leave program applies to almost all private-sector employers. State government is exempt from the mandate, which allows up to 12 weeks paid leave for employees to care for their own or any extended family member’s illness or injury. Workers have paid a 0.5 percent tax from each paycheck since Jan. 1, 2021, to fund the program.

CBIA has raised concerns about the program’s long-term solvency since the mandate was first proposed. Why? Because the math doesn’t work.

An employee earning a median family income of $78,450 contributes $392 annually to the paid-leave fund and is eligible to receive up to $9,360 in yearly benefits.

At that level, the contributions of 24 workers are needed to pay the benefits of a single person. The paid-leave authority projects 85,000 annual claims.

So, if every one of those 85,000 claimants makes the median income and collects full paid-leave benefits, over 2 million employees must pay into the system to fund their claims. But as of November 2021, there were only 1.39 million private-sector workers in the state.

Mark my words: At some point, the fund will run out of money, followed by inevitable demands that employers contribute to the program. It has already happened in other states, despite those states offering less generous benefits than Connecticut.

Perhaps the most troubling aspect is that lawmakers ignored the fragility of the state’s economy when narrowly approving the paid-leave program in 2019, one of an astonishing 28 workplace mandates passed by the legislature since 2016.

Each of those mandates originated in the General Assembly’s Labor and Public Employees Committee. They represent just a fraction of the harmful bills proposed by committee leadership during that time. CBIA opposed over 75 harmful bills approved by the committee, invariably along party lines, during the past six years, with most failing to win full legislative approval. An estimated 75 additional proposals did not advance out of the committee.

Those mandates were proposed and debated during a period of anemic job and GDP growth in Connecticut, reflecting a troubling disconnect between legislative policymaking and the state’s critical economic needs.

A review of the years between 2016 and 2019 — before the pandemic fully upended the economy — shows that Connecticut’s jobless rate was the country’s highest or tied for the highest in 29 of those 48 months. Job growth was a woeful 0.36 percent — a net 6,100 jobs — over those four years, just a fraction of the New England region’s 4.7 percent growth. The U.S. added jobs at a 3.8 percent rate during that time.

Connecticut’s economy was also largely stagnant from 2016 through 2019. GDP was unchanged in 2016, grew 0.9 percent in 2017 and 2019, and just 0.4 percent in 2018 — well below the performance of the regional and national economies.

Personal income growth in the state — another key sign of economic health — also trails the region and the country. A Pew Charitable Trusts report showed that if it were not for unemployment benefits and federal assistance, Connecticut’s personal income growth would have declined in 2020.

This slew of mandates makes a challenging situation even tougher — further driving up the high cost of doing business, dumping administrative burdens on smaller employers, and reinforcing tired old perceptions about the state’s business climate.

Connecticut should be making it easier — not more difficult — to create jobs here, to attract and keep companies here.

The 2022 legislative session begins next month with reasons for Connecticut employers to be optimistic. Thanks to the 2017 bipartisan budget compromise that implemented an initial set of fiscal reforms, we have made unexpected progress toward resolving the longterm issues that held us captive to endless cycles of deficits and tax hikes for years.

Those reforms also helped improve Connecticut’s rankings in national business climate polls in almost every category except the cost of doing business — an area directly influenced by the state’s tax and labor policies.

Lawmakers from both sides of the aisles are talking seriously about implementing long-overdue tax relief. It’s also time they address the out-of-control torrent of workplace mandates that do nothing but harm Connecticut’s growth and reputation.