A bipartisan agreement has been reached on a proposal to restore Connecticut’s unemployment insurance trust fund, which was depleted by the pandemic.
The announcement was made by Gov. Ned Lamont, state Reps. Sean Scanlon (D-Branford, Guilford) and Holly Cheeseman (R-East Lyme, Salem), along with various legislative leaders, the Connecticut AFL-CIO, and the Connecticut Business & Industry Association (CBIA).
The group said that the proposal not only restores the trust fund”™s solvency but also reduces taxes on at least 73% of businesses by broadening the taxable wage base, reducing tax rates and reforming benefits.
Connecticut”™s unemployment insurance trust fund has been insolvent for 48 of the last 50 years, forcing the state to borrow money from the federal government during economic downturns. During the Great Recession, Connecticut borrowed $1.25 billion from Washington, a debt repaid with $85 million in interest over 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.
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.
- Defers UI benefits until the end of any severance payments for all employees.
Those changes align Connecticut”™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, according to the group.
“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,” Lamont said.
“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,” said Dave Roche, president of the Connecticut State Building and Construction Trades Council and general vice president of the Connecticut AFL-CIO. “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.”
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,” 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. Such comprehensive reforms show what we can accomplish together when the public and private sectors collaborate and develop solutions that benefit all.”
“This bipartisan proposal offers a meaningful step toward creating long-term stability in our unemployment compensation fund while easing associated cost burdens for businesses,” House Minority Leader Vincent Candelora (R-North Branford) said. “That advocates for the business community had a seat at the negotiating table is significant, and I”™m hopeful the spirit of collaboration that led us to this point will fuel additional conversation about action we can take together to create a more competitive business climate.”
The bipartisan proposal also:
- Reduces the maximum solvency tax rate during recessions.
- Reduces experience tax rate increases when those increases are due to sectorwide economic shocks, rather than individual firm behavior.
- 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.
- 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. In addition, 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 and 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%.
