[T]he Democrats’ paid family leave bill came out of its first committee this month proposing one of the most robust versions of the program in the United States.
But it’s now facing financial scrutiny in the House Ways and Means Committee, and it’s unclear if the proposal will stay that way.
The House Committee on General, Housing and Military Affairs approved a version of the bill, H.107, earlier this month that would require all employers to enroll in an insurance program that replaces 100 percent of wages for up to 12 weeks of leave per year — taken for personal disability, to care for sick relatives, or for maternity and paternity.
The bill voted out of committee was funded through a tax of just less than 1 percent — a .93 percent payroll tax that would be split 50/50 between employers and employees.
The 100 percent wage replacement would be higher than any of the seven states that already enacted paid leave programs. The tax rate and weeks of leave per year would be somewhere in the middle.
Lawmakers got a few doses of reality last week from the Joint Fiscal Office, which modeled the proposed paid leave program using a .67 payroll tax, an updated estimate on what the program would cost.
If there is a recession in the near future — something most economists are expecting — the program would run a deficit by its fourth year.
Even in a non-recession scenario, reserves start drying up fast after three years (JFO is working on an analysis beyond five years).
The program won’t pay out benefits for two years after the state starts collecting taxes for the program.
To address the sustainability issues, legislators could either increase the initial rate, reduce the benefits, or build in flexibility to raise rates or reduce benefits in a few years (or keep it as is and change the law later).
As it stands, economic volatility is built into the bill, said Rep. Tom Stevens, D-Waterbury, chair of the House General committee.
“The way the bill is written, if there is a recession, and the reserve fund ends up getting tapped into as proposed by this particular ‘what-if’ exercise, then the Legislature has the responsibility to adjust that premium, or benefit, so that the fund doesn’t go insolvent,” Stevens said.
He compared it to his family’s health insurance — worth paying for in order to receive the benefits, even when the rates go up.
“The opposition can oppose anything in the bill that they’d like, but I’m interested in seeing what the best numbers are and then building a good argument for why that program should keep going on as its been designed, or designed better through the legislative process,” Stevens said.
The Ways and Means committee was also tussling last week with how to get the program — which will cost about $100 million a year — off the ground. Development alone is expected to cost $12-$13 million.
One option is borrowing from the state treasury against expected revenue, which would require paying interest. Another possibility is starting to collect the payroll tax next year and then start paying out benefits in 2021, but there would still be a startup cost for the new tax collection system.
“It may be what we have to do, but it feels like its a problem,” Rep. Janet Ancel, D-Calais, chair of the tax-writing committee, said during a discussion on the options.
“This is what startups have to do all the time,” said Rep. Robin Scheu, D-Middlebury, another committee member. “It’s a challenge.”
Lisa Ventriss, president of the Vermont Business Roundtable, said a lot of the businesses she works with already offer their employees these benefits, raising concerns about doubling costs when they also have to pay into the state program. Ventriss said that concern only intensifies as the costs of the state program rise.
“Perhaps the original plan might be appealing, but moving through these various stress scenarios, we realize that with such a generous program that covers 100 percent of employees’ salary, Vermont would be only state in the country with that high of a level of benefit,” she said.
“If policymakers see the numbers aren’t working, why wouldn’t they dial it back to something more affordable?”
She said it’s a lot harder to lower a benefit that you’ve already offered to people than to do it right from the start.
“It would be lovely if we could provide everything to everybody, but the fact of the matter is we have a declining taxpayer base,” Ventriss said. “Our demographic trends are not going in the right direction. We have to understand and accept that we are not a wealthy state, and then right the size of our appetite for some of these things.”
Rep. Johannah Donovan, D-Burlington, ranking member of Ways and Means, said the specifics of the bill — including the payroll tax rate — were still in flux.
“We’re still taking testimony and looking at what other states are doing, and listening very carefully to what JFO is telling us,” she said. “We’re still in the midst of it, and playing it out and make sure we have all the numbers right and making the right decision.”
Ashley Moore, director of Vermont’s Main Street Alliance, a small business organization that has been lobbying for paid family leave, said she’s not concerned about the latest economic analysis showing reserves drying up if the economy turns downward.
“The Joint Fiscal Office did economic modeling that other state programs have used to fund the program, and we’ve found that in every other state that funds this kind of program, these numbers have been very accurately represented,” Moore said.
California is the only state that launched its paid family leave program before the last economic recession in 2008. New Jersey launched its program in the immediate wake of the recession, Rhode Island started in 2014 and New York in 2018. Washington, Washington, D.C., and Massachusetts plan to launch their programs in the next two years.
“The funds have been solvent and sustainable,” Moore said of the other states with paid leave. “The bill allows for adjusting the benefits and payroll tax, but the need to do so has been infrequent.”
One of the main concerns about Vermont’s paid family leave proposal is whether the state’s small employee pool can generate enough revenue to keep it viable, one of the factors that drove Gov. Phil Scott to pitch a voluntary program together with New Hampshire.
The programs in California, New Jersey and Rhode Island vary widely in how they are funded, who’s eligible and what they pay out. If there’s a common problem, it has been lagging participation — due to a lack of awareness and an inability to afford the temporary salary cut with partial wage replacement.
New Jersey, which has a population of 9 million, expanded its paid leave program last week to increase wage replacement from two-thirds to 80 percent, after finding in 2017 that only 12 percent of new parents were receiving benefits.
Rhode Island, which has a comparable population to Vermont at about 1 million, only offers about 60 percent wage replacement under its program. California, with a population some 60 times larger than Vermont, is looking to expand leave dramatically.
Colin Meyn contributed reporting
Correction: A previous version of this article incorrectly stated that H.107 only applies to employers with more than 10 employees. It applies to all employers.
