The state’s business community is opposing a raise in state benefits for unemployed workers. The companies and trade associations argue the increase is fiscally unwise and a repudiation of a tough political compromise worked out in 2010, in the wake of the recession.
The state’s unemployment insurance trust fund is funded chiefly by a tax on employers, a tax that is higher for certain businesses, such as the ski industry. The fund has been replenished by a loan from the federal government, which happened in 2010 as Vermont’s fund went bankrupt.
But now, since Vermont’s economy has performed better than forecast in 2010, some legislators argue that unemployed workers should share in the spoils from a healthy economy.
“We’ve had a remarkable recovery from the Great Recession, due in part to the hard work of our workforce,” said Rep. Dave Sharpe, D-Bristol, who backs a raise in state benefits for unemployed workers and one of the architects of the original unemployment compensation package. “So they should share in the fruits of the recovery, it seems to me.”
In 2010, the state both cut unemployment benefits and hiked taxes on employers, to save the trust fund from bankruptcy, prompted by the recession among other factors. Sharpe called raising benefits now simply “recouping what they [unemployed workers] lost.”
Moreover, Sharpe said, employers have avoided some $54.8 million through 2015 in federal penalties, because the state is able to pay back its federal loan mostly on schedule.
“An early ability to retire the debt with the federal government relieves employers of having to pay the FUTA [Federal Unemployment Tax Act] tax they expected to pay,” Sharpe said. “The employers are getting a break here. So, unemployed workers should be able to share in our success, and get a little bit in additional unemployment benefits.”
But business associations like the Associated Industries of Vermont (AIV) counter that the issue isn’t that simple. Sharpe’s logic, that raising benefits is fair because employers won’t have to pay federal tax penalties, is flawed, said AIV Vice President William Driscoll.
“Because employers held onto and rehired workers more than expected, we didn’t have to borrow as much, and that’s why employers avoided the federal penalties,” Driscoll said.
“Yes, employers avoided some penalties,” he continued. “Because people who were expected and projected to be unemployed [in 2010] were not. That’s a benefit that corresponds to the employers avoiding taxes.”
“Those who collected paychecks rather than unemployment benefits just in 2011 and 2012 alone can be estimated to have benefited by nearly $137 million, much more in just those two years than the entire $54.8 million in federal penalties employers are expected to avoid through 2015,” according to an AIV summary paper outlining reasons to oppose increased benefits.
Driscoll said the 2010 agreement shouldn’t be meddled with on an ad hoc basis. “We can’t be going back into that legislative package and change it every year,” he said.
Betsy Bishop, director of the Vermont Chamber of Commerce, pointed out that the federal debt isn’t yet fully paid back, and that even when it is, the trust fund which pays for unemployment benefits won’t be considered “solvent,” or healthy, for a little while yet.
“Solvency” for the trust fund used to be a positive balance of $240 million, said Sharpe, but now the solvency threshold is $160 million. The state’s Labor Department didn’t respond to VTDigger’s requests for comment, and didn’t estimate when the trust fund might become solvent again. The trust fund is set up so that tax revenues during good economic times will keep the fund going throughout a recession.
Until the fund is solvent again, said Bishop, “We don’t think we can start spending beyond that [2010] compromise.” She described that deal as “painful for everybody,” insofar as it froze benefit levels but also levied the highest tax rates employers had ever seen.
Driscoll echoed Bishop’s arguments about long-term financial prudence, saying: “Even though we’re doing a lot better with the UI [unemployment insurance] trust fund, it’s still very weak. … We’re going to be very lucky to get to a sustainable trust fund before the next recession hits.”
“To increase spending at this point, when Vermont benefits are already higher than the national average, is just not responsible,” he said.
According to Driscoll, who analyzed federal government data, Vermont’s weekly benefit, relative to the state’s average wage, is 20 percent higher than national average unemployment benefits.
State businesses also face an unemployment insurance tax burden 63 percent higher than the national average, said Driscoll.
For those receiving unemployment insurance checks, which are weekly claims, the state’s average benefit is $308 per week, federal data shows. The benefit is 57 percent of the wages employees earned, but was capped in 2010 at $425/week.
Sharpe said $425 per week is “not a whole lot” for a family, noting that the figure only represents the maximum, not average, benefit. As part of increasing benefits, Sharpe supports immediately indexing the benefit to wage inflation, instead of waiting until one year after the federal debt is repaid and the fund removes its deficit, as under current law.
As of April 2013, there were about 8,800 weekly unemployment insurance claims, according to state department of labor data. Vermont Business Magazine reported that weekly unemployment claims this week rose from last month, but fell below last year’s figure.
In 2012, there were 54,530 initial claims for normal unemployment claims, totaling about $101.15 million in unemployment insurance payments, down about 15.8 percent from 2011 payment levels.
Looking forward, the legislative process for measures to increase benefits appears unclear. The specific legislative proposals themselves are also somewhat tentative.
Sharpe has suggested a change to “disregarded earnings” before the House Commerce and Economic Development committee, which he said could increase benefits by $2.5 million in total. He said the Department of Labor told him that this particular change wouldn’t slow the state’s moving to a more favorable tax rate, or “schedule”, for employers.
Other ideas on the table include removing a mandated one week waiting period, imposed in 2010, before someone can receive benefits, besides indexing benefits to wage growth immediately.
Sharpe called the one week requirement “ridiculous,” arguing that food, rent, and gas bills don’t wait a week. Driscoll says that the average person collects unemployment insurance for 14 to 15 weeks, meaning that an extra week of benefits is a costly seven percent increase per beneficiary.
The House Commerce and Economic Development chair, Rep. Bill Botzow, D-Pownal, doesn’t yet have a position on the broad push to raise benefits, or on specific legislative options. More testimony is needed, said Botzow, who doesn’t yet know when the issue could hit the House floor.
It’s expected that legislative proposals, will originate from the House Commerce committee through amendments to a Senate workers’ compensation bill, before that bill heads back over to the Senate Finance committee.
In the meantime, the AIV and 14 other major business associations sent a letter on April 10 to Gov. Peter Shumlin, House Speaker Shap Smith, and Botzow, arguing against any benefit increases.
“Given these [high Vermont] benefit levels, and the upward pressure on taxes that benefit increases can create, new increases do not appear justifiable,” the letter states. “To repeat the mistakes of the past and undo the modest but important spending restraints imposed in Act 124 at this time would be unwarranted and unwise, and would violate the integrity of the compromise underlying the Act’s provision.”
Representatives at the state’s department of labor, which administers unemployment benefits, didn’t return requests for comment, noting that Commissioner Annie Noonan was out sick on Monday.
For business leaders like Betsy Bishop, part of the issue is not reneging on past political agreements.
“If we’re going to change one side of the agreement, that opens up the whole agreement” to change, said Bishop, who said businesses are paying far more to the trust fund than they ever have, and would appreciate lower tax rates.
“We stick to the fiscal path that we chose and compromised in,” she said. Driscoll said part of the point is to avoid another disaster like the setback, bankruptcy, and painful negotiations in 2010.
The state still owes about $57.7 million to the feds, compared to $77.7 million at this time last year, though the trust fund has a positive net balance of about $3 million.
For Vermont Department of Labor unemployment statistics, click here.
