To rebuild unemployment fund, CT wants to hit up bigger businesses

In this file photo taken on March 24, 2020, a local business is closed until the state sanctioned three weeks

In this file photo taken on March 24, 2020, a local business is closed until the state sanctioned three weeks "stay at home" order is lifted in Detroit, Michigan.

SETH HERALD / AFP via Getty Images

Gov. Ned Lamont’s new plan for rebuilding Connecticut’s sagging unemployment fund would require bigger businesses to pay a larger share, with increased tax relief for many smaller businesses.

It would also sharply reduce the number of people who can draw unemployment benefits while receiving severance payments after losing their jobs.

On Wednesday, the Finance, Revenue and Bonding Committee discussed how to rebuild Connecticut’s Unemployment Insurance Trust Fund, which the state drained during the COVID-19 pandemic by paying out benefits across 1.4 million claims over the past 12 months.

David Lehman on March 17, 2021, during testimony to the Finance, Revenue and Bonding Committee of the Connecticut General Assembly in his role as commissioner of the Connecticut Deparmant of Economic and Community Development.

David Lehman on March 17, 2021, during testimony to the Finance, Revenue and Bonding Committee of the Connecticut General Assembly in his role as commissioner of the Connecticut Deparmant of Economic and Community Development.

After blowing through $7.5 billion over 12 months paying out jobless benefits, Lamont wants to rebuild the fund through changes that would have bigger businesses paying a larger share — with many small businesses to see their taxes cut if the Connecticut General Assembly adopts the recommendations.

Lamont wants to expand the “taxable wage base” cap used to compute trust fund contributions. The governor’s policy director Jonny Dach told legislators on Wednesday that would shift some of the burden of rebuilding the fund from the backs of small businesses to larger employers picking up more of the tab.

Restaurants alone, Dach said, would shave 35 percent on average off their unemployment insurance taxes.

Jonny Dach, policy director for Gov. Ned Lamont, D-Conn., testifies on Wednesday, March 17, 2021, to the Finance, Revenue and Bonding Committee of the Connecticut General Assembly. (Screenshot via YouTube)

Jonny Dach, policy director for Gov. Ned Lamont, D-Conn., testifies on Wednesday, March 17, 2021, to the Finance, Revenue and Bonding Committee of the Connecticut General Assembly. (Screenshot via YouTube)

The Connecticut Department of Labor lists some 580,000 people by Social Security number who have received unemployment benefits, with an unspecified number having cycled on and off assistance as dictated by repeat interruptions in their regular work income.

The DOL has taken out $635 million in federal loans to date to continue paying benefits to state residents, with more than 200,000 receiving assistance as of this week.

Dach described Connecticut as “bottom of the barrel” nationally as of January 2020 with regard to the solvency of its Unemployment Insurance Trust Fund, even after 10 “pretty good years” of contributions after the 2009 recession. It took Connecticut six years to repay the $1.25 billion it borrowed after the Great Recession, including interest of $85 million it incurred.

“The program has to be funded — there’s no such thing as a free lunch,” Dach said. “If you pay out a dollar in benefit, it means you are going to collect that dollar at some point from the employers.”

Tinkering with benefits

But a freebie was served up for one group during the pandemic — independent workers who under preexisting federal law do not have to pay unemployment insurance taxes.

Those earners were allowed to draw benefits for the first time under last year’s Coronavirus Aid, Relief and Economic Security Act, which sought to ease the shock to the U.S. economy caused by mass business closures. As of mid-February, the U.S. Department of Labor reported more than 38,000 independent workers in Connecticut receiving unemployment benefits.

Across the board, Connecticut claimants are able to draw a maximum $667 weekly benefit at present, with the CARES Act authorizing a $600 “plus-up” for stretches of 2020 that has since been reduced to $300 through this August.

Dach said both fund solvency and commonsense were behind the proposed rule that would prevent people putting in for unemployment benefits until after they clear their severance schedules, saving the state an estimated $50 million annually on average.

“I don’t think people have an expectation that they will be able to get more than their initial base salary in a week because they are drawing severance and [unemployment benefits] at the same time,” Dach said. “No one who has lost their job is well off — but if we have to restore solvency to the fund by tinkering with benefits for some of them, I think that’s a reasonable place to start.”

A lobbyist with the Connecticut Business & Industry Association testified Wednesday that CBIA members want benefits reform to be the priority.

CBIA’s Eric Gjede said the state was making progress toward achieving trust fund solvency but that the pandemic torpedoed that progress. Among other points, CBIA wants to raise the minimum earnings threshold at which individuals could apply.

“It is intended for those who become unemployed through no fault of their own — but in order to get benefits, you need to have demonstrated a reasonable ‘attachment’ to the workforce,” Gjede said. “Working one full week in the entire year is not a reasonable attachment to the workforce. ... We’ve got to make sure that those workers that are getting these benefits have demonstrated that they want to work. Other programs [exist] for those who cannot work.”

The COVID-19 experience

Under Lamont’s proposed formula, smaller businesses that rely on seasonal workers who file for unemployment more frequently would likely see no reduction in amounts owed.

Tammy Nuccio, R-Tolland, said that any legislation needs to limit the exposure of small businesses that saw large numbers of people go on unemployment after they were forced to close under executive orders last year by Gov. Ned Lamont, impacting the “experiencing rating” scale that determines their contributions owed.

“That’s what I’m hearing from all my small businesses — that the ‘experience rating’ part is going to kill them, and it’s the COVID-related experience rating,” Nuccio said Wednesday. “They were mandated to close ... [but] they wouldn’t have closed on their own.”

Dach said the administration hopes the Connecticut General Assembly will address that scenario via separate legislation before the Labor and Public Employees Committee.

David Lehman, Lamont’s commissioner leading the Connecticut Department of Economic and Community Development said getting the fund onto solid footing will benefit “substantially all” Connecticut businesses, but particularly smaller enterprises.

“The taxable wage base ... has been stagnant too long — not even indexed with inflation,” Lehman said Wednesday. “This is a terribly regressive tax that needs to be addressed.”

Alex.Soule@scni.com; 203-842-2545; @casoulman