State wants to increase UI tax, cut benefits

first_imgThe Vermont Department of Labor is proposing that the state increase the tax charged to businesses to support the Unemployment Insurance Trust Fund and should also decrease the benefits paid to unemployed workers in order to head off a deficit in the trust fund.Labor Commissioner Patricia Moulton Powden presented her department s Unemployment Insurance Reform Proposal (http://labor.vermont.gov/Portals/0/UI/UI%20Brief.pdf(link is external)) to the Government Affairs Committee of the Vermont Chamber of Commerce yesterday.Powden pointed out that the trust projections show that benefits will increase to $160 million in 2009, while contributions from employers will only be $55 million. However, that $160 million assumes only a 6.3 percent average unemployment rate. The Vermont unemployment rate stands at 6.4 percent (December 2008) now and economists expect it to increase throughout the year. The projections Powden presented in the proposal would put the fund into a negative balance of $100 million in 2010 and continuing in a downward trend. By 2015, the deficit would reach $300 million.Labor s projections were based on a model developed in November 2008. The projected average unemployment rates are 6.7 percent for 2010, 6.0 percent for 2011 and 5.0 percent for 2012, all of which seem optimistic based on current economic data.The federal government guarantees unemployment benefits to workers. If the state is not able to pay benefits, the federal government would lend the state money. The state would need to borrow nearly $100 million in 2010, which would cost it about $1.8 million in interest in that first year. By 2015, the cash advance would reach more than $300 million a year and cost more than $14 million in interest. By that time, the state would be required to pay back about $21.5 million on the principal.Powden was lobbying the Chamber to gain support for the Douglas Administration s proposal before the administration sends a bill to the Legislature.The basic details are these: The state currently charges at the Level IV rate, the second highest level. Employers are charged between 1.1 percent to 7.7 percent on the first $8,000 of each employees wages, depending on an employer s experience rating, that is, how frequently they ve laid off workers in the past. The more an employer has laid off workers, the more they re charged.The state proposes increasing the rating to Level 5 in 2010, which would push the range from 1.3 percent on the low end, to 8.4 percent on the high end. The wage base would also be increased in two phases, from $8,000 to $14,000 in 2010 and from $14,000 to $20,000 in 2011. This will increase contributions by $44 million the first year and by another $41 million the second year. The proposal would have the increase begin to sunset in 2014.The major piece on the benefit reduction side would have weekly benefits reduced from $425 to $409 starting in 2009. It would also reduce the average wage replacement from 57 percent, the 17th highest in the nation, to 50 percent, which would be more typical compared to other states.The state is also proposing eliminating the optional trigger for state extended benefits. Triggers are used in case the unemployment rate remains high for an entire quarter. By eliminating the state optional trigger, the federal option would kick in instead, thus saving the state some more money.The bottom line with these proposed changes would be a negative balance of about $35 million in 2010 and negative $36 million in 2011 before returning to a positive balance of almost $7 million in 2012. It would grow from then and would be almost $186 million in 2015.For comparison, the proposal suggests that total unemployment benefits will be $154 million in 2009 with $55 million employee contributions; remain about the same benefit level in 2011 with nearly $100 million in contributions; benefits decreasing to $136 million in 2011 with $140 million in contributions; benefits of almost $111 million in 2012 with $144 million in contributions as the fund moves back into a positive balance; and looking farther forward, the benefits would be $89 million in 2015 with $143 million in contributions.Powden said the state wants to balance the pain between recipients and contributors so that neither group will have to carry the load themselves. She said increasing contributions only from employers would require contributions to increase from the current $55 million to $180 million. This she said could force already struggling firms out of business, which would lead to even more layoffs.last_img

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