Vermont Gov. Jim Douglas, Senate President Pro Tem Peter Shumlin and House Speaker Shap Smith announced an agreement this morning to resolve the state’s bankrupt unemployment fund by 2015.
Unemployment Fund plan, May 3, 2010, Page 1
Unemployment Fund plan, May 3, 2010, Page 2
The deal was struck after several weeks of intense negotiations and includes restrictions on unemployment compensation benefits and an increase in taxes on businesses.
Douglas thanked the Legislature, Shumlin, Smith and his commissioner of the Department of Labor for their willingness to come together to agree on a solution for the insolvent fund.
“Running sustained deficits in any state fund neither represents our Yankee independence nor our commitment to fiscal responsibility,” said Douglas. “Moving ahead with this compromise is much preferable to the alternative – doing nothing – and importantly strengthens the fund. Setting our UI trust fund on a sustainable course is critical to our economic recovery.”Shumlin said the negotiations are “an example of how we get things done in Vermont.”
“Other states are facing extraordinary deficits and they don’t have the courage to balance their budgets as we do,” Shumlin said. “The difference between the Vermont approach and the other 49 states is that we joined hands and made the tough decisions. This agreement has bipartisan support.”
Doing nothing, legislative and administrative leaders have reiterated repeatedly, was not an option.
The fund went bankrupt in January, and since then, the state has had to borrow $4.1 million a week from the federal government in order to pay benefits to laid-off workers.
Smith said the state’s leaders had been in negotiations for over a year.
“We are insuring that people who are laid off have some assistance in that difficult time,” Smith said. “Without securing that trust fund, we would be undermining the future of the system itself and doing damage to its integrity.”
If leaders hadn’t found a fix for the bankrupt fund before adjournment, the state would have had to borrow $163 million by the end of 2011, and $257 million in all. The interest payments to the federal government at a rate of 4.6 percent would have totaled $81 million, and all Vermont employers would have been liable for $172 million in additional federal tax payments.
On Friday, the Democratic leadership and the governor came closer to finding middle ground. By Monday morning, they had come up with a plan they said would strike a balance between the needs of businesses and workers.
The taxable wage base, the portion of a worker’s wages employers pay unemployment tax on, will increase from $10,000 to $13,000 beginning Jan. 1, 2011, and to $16,000 on Jan. 1, 2012. In addition, a fine of up to $5,000 will be assessed on employers who misclassify employees, and penalties for reports filed past the deadline will increase from $35 to $100.
Once the fund is back in balance, the taxable wage base will drop back by $2,000.
Unemployed workers will also have to wait one week to receive their first benefit check under the agreement. In the proposal that Smith and Shumlin outlined last Friday, this provision would have sunset in 2014; under the
new deal, the one-week waiting period has been extended to 2017.
The penalty period for workers fired for misconduct was also changed, extended from the current 6-12 weeks to 6-15 weeks. The fired employee could still collect compensation after that time.
Gross misconduct definitions were expanded to include unprovoked insubordination or public use of profanity. Examples of gross misconduct also cited are: felony convictions, property damage, theft, fraud, intoxication and intentional infliction of personal injury.
Laid-off workers are disqualified from collecting unemployment while they are receiving severance pay.
The new system will exempt $40, or 30 percent of part-time wages, whichever is greater.
The combination of tax increases and benefit restrictions will restore the unemployment fund balance by 2015.
The fund went bankrupt because the state didn’t require businesses to pay adequate unemployment taxes for a 27-year period, even as it pegged benefits for workers to inflation. The taxable wage base, which is a percentage tax on a portion of an employee’s earnings, had not been significantly increased since 1983, though last year lawmakers raised the base from $8,000 to $10,000.
Patricia Moulton Powden, state Labor commissioner, said the unemployment agreement includes a provision that allows the state to index the tax payments to wage growth so the fund doesn’t become insolvent again in the near future.
