Vermont’s unemployment insurance program, like 40 other states, is facing a crisis. This year, the Legislature increased employer taxes and blocked an automatic increase in benefits for those workers who make $38,000 or more a year. While painful for both employers and the unemployed, this action only delayed the crisis, resulting in a $30 million projected increase in borrowing to pay for future benefits. Currently, the Department of Labor estimates that it must begin borrowing money in January to continue paying benefits to Vermont’s unemployed workers and without additional changes to the program, it will have to borrow every year for the foreseeable future.
While borrowing money to stabilize the fund must be part of the solution, borrowing comes at a cost, both as interest accrued and the negative penalty assessed to all employers in a state that borrows money to pay for unemployment benefits. Currently under the system, the portion of unemployment taxes Vermont employers pay to the federal government will increase significantly over time to pay back the borrowed unemployment funds. Moreover, the base wage at which the federal tax is applied is expected to increase as the federal unemployment fund begins spending at a rate of a whopping $90 billion. Add it all up, and borrowing money from the federal government means quite simply taxing tomorrow instead of taxing today.
To solve this problem, the Legislature created a study committee to address this issue and last week they heard from Vermont Chamber member businesses that the overall economic climate continues to take a toll on their ability to provide jobs. Every one of these businesses acknowledged that they must pay more in taxes but they asked for the Legislature to also address changes in the benefit system. Unfortunately, labor representatives asked that the benefits remain the same and suggested a wait and see approach to the funding crisis. With the pain of borrowing already upon employers, we need bold leadership. Status quo and wait and see are not appropriate responses for our elected representatives to adopt.
So what’s the solution? The Vermont Chamber has been advocating for a moderate approach, one where employers pay more while benefits are modified, a plan where we solve the problem through a shared sacrifice. Understanding the scope of the problem is necessary in order to find a solution that works for job providers and job seekers. The most recent Douglas Administration proposal suggests adding $84 million dollars to the taxes paid by employers over the next four years. That alone could suppress more than 1,500 jobs. Yet they counter that proposal by reducing benefits by $28.5 million.
At last week’s hearing there was much discussion about not “rushing to a solution” and no need for “hasty decisions.” Action in this legislative session would be neither. This conversation has been going on for years, and the Vermont Chamber and others have put specific proposals on the table last year. Delay only costs employers more, leading to more job cuts, and jeopardizes our ability to provide reasonable unemployment benefits. Last year’s modest action has already resulted in an additional $30 million dollars in borrowing than originally projected. Failure to act now will only exacerbate this problem.
Failure to get the fund not only back in the black, but to a level that is adequate to carry us through the next recession is critical to avoid a cycle of borrowing for many years. This would lead to a cycle of increasing tax burdens on the very employers we want to retain and create more jobs.
It is my hope that the Legislature will listen to the job providers in this state and seek a balanced approach to a difficult problem. Employers are willing to pay more into the unemployment fund in order to continue paying benefits but only if the benefit system is modified to reflect a shared sacrifice. Employers and employees need each other and work together often to find solutions. Fixing the unemployment fund should be no different.
This op-ed was written by Betsy Bishop, president of the Vermont Chamber of Commerce, located in Berlin.
