Some Vermont businesses shut down for months by Hurricane Irene are now being hit by new woes: sharply higher contributions to the state’s unemployment insurance trust fund.
In one example, the Woodstock Farmers Market, an upscale private market for produce and gourmet food, laid off its 45 employees after the storm as it closed down for extensive repairs, which lasted 11 weeks. But during that period, the state counted those 50 employees as ordinary fired employees, which worsened the company’s unemployment insurance rating.
That UI rating summarizes employer’s history of firing and hiring employees, and means that employers with higher turnovers contribute more to the state’s unemployment insurance trust fund, which then doles out benefits to the unemployed.
For the Woodstock Farmers Market, that meant an extra $40,000 annually in contributions to the fund, even though they couldn’t prevent the disaster or the temporary firing of their employees. That $40,000 represents about a year’s worth of profit, according to the firm’s chief financial officer, Steve Moyer.
“Why should you be penalized in your UI rating for an act of God?” asked Patrick Crowl, the market’s owner. “The cash flow after a disaster is your lifeblood. You’re paying all your money back to the state because of an act of God. It doesn’t make sense.”
“It ought to be: Look, you’re a hardworking business. You’ve been paying unemployment for years and years. You have an act of God. You should go back to what your rating rightfully is,” continued Crowl, who also has a $100,000 loan from the Vermont Economic Development Authority he still hasn’t paid off.
Crowl isn’t the only business owner facing up to this prospect, which he described as an unintended consequence of the state’s current insurance regulations. John Farrow’s West Hartford General Store suffered through three to five feet of water, which “damaged everything,” in his words.
He laid off his five employees, closed for seven months, and spent $300,000 to prop the business back up. But because of an inflated UI rating, he went from paying a few hundred dollars of unemployment insurance quarterly to $1,759 per quarter.
He ended up with a $4,000 debt to the state, and interest and penalties now approaching $500. He told VTDigger that he’s refused to pay the debt so far. Farrow appealed his rating with the Department of Labor, went through a labor court hearing, and has testified in the Statehouse, though he filed his initial complaint with Congressman Peter Welch.
“It’s totally unaffordable for me,” said Farrow, who owns and operates the store, and is appealing the unfavorable labor court decision this week. “I’m penalized for a natural disaster, basically.”
State legislators, have taken note, and recently passed legislation in both the House and Senate, which shields the insurance rating of these businesses for eight weeks post-Irene, if they can prove that Irene directly caused them to lay off workforce.
The legislation reduces Crowl’s bill from $40,000 annually to about $12,000 to $15,000 annually. Although he’s grateful for that relief, he still holds that he shouldn’t have to contribute extra to the fund, because of an insurance rating he couldn’t avoid.
Legislation as initially introduced wiped out all insurance rating changes and expenses caused directly by Irene. It was co-sponsored by Rep. Alison Clarkson, D-Woodstock, among others. She is from Crowl’s House district and someone he complained to early on.
The state’s unemployment insurance rating is also calculated on a three-year period, added Crowl, which means that the business will still pay an additional $36,000 to $45,000 over three years, even with the relief.
Labor Commissioner Annie Noonan told VTDigger in an email that choosing eight weeks as the right relief period strikes a “delicate balance between providing relief and minimizing the burden on unimpacted businesses.”
She noted that providing this retroactive eight-week relief to affected businesses will cost the state’s trust fund $8.6 million, a cost borne by all businesses, including those who weren’t affected by Irene.
The fund can afford to spend about $12 million on this relief, according to Noonan, before spending jeopardizes the state’s ability to pay back a massive federal loan it took out in 2010, $54 million of which is still owed. Paying back that loan and keeping the insurance fund solvent is a top priority, she said.
Eight weeks relief is all the trust fund can afford at this time, said Rep. Bill Botzow, D-Pownal, who chairs the House Commerce committee which shepherded the legislation. “We went as far as we thought was fiscally prudent,” he told VTDigger.
Noonan added that the average length of unemployment for those impacted by Irene stood at seven weeks, meaning that the legislation is generous enough to help many of the state’s businesses.
There’s no estimate of just how many businesses had their insurance rating skewed by the storm, said Noonan. Under the legislation, businesses first have to prove that Irene, and not some other factor, forced them to fire staff. Only after businesses go through that process will figures become available.
There are, however, about 21,000 businesses in the 12 federally declared disaster counties, declared after the 2011 floods and Hurricane Irene, Noonan said. It’s unknown how much extra in total such businesses have already paid to the state’s trust fund, thanks to skewed ratings.
According to the legislation, for future disasters, the shield for a firm’s insurance rating will only last four weeks. Noonan said the shorter and more conservative shield protects the integrity of the trust fund, and could be changed by lawmakers in future years if necessary, if the shield is inadequate.
For Farrow, who took 28 weeks to climb back on his feet, four or eight weeks simply isn’t good enough. He calls his extra contributions a “severely unfair penalty.”
Sen. Peter Galbraith, D-Windham, who presented the bill on the Senate floor this week, also framed the question in terms of fairness, and defended the eight-week shield.
“I think we’ve come up with a fair solution,” said Galbraith, who noted the need to balance the solvency of the fund with the need to aid those who were worst hit. “There’s no solution that’s perfectly fair.”
“There are many kind of losses, acts of God, for which people get no relief at all,” he continued. “Again, if I had a magic wand, and we had unlimited money, I would absolutely give everybody the full amount.”
“It’s not like there’s just a huge pot of money there that can just pay it out,” said Botzow later, employing similar terminology.
