Having paid out billions of dollars in benefits since the coronavirus pandemic struck in mid-March, Connecticut’s unemployment trust fund is headed for insolvency later this month or in early September, according state Labor Department officials.
That means Connecticut will need an emergency federal loan to maintain benefits for hundreds of thousands of unemployed here — a move that could translate into higher taxes on local businesses.
“Right now our primary focus is getting our customers, both the unemployed workers and the businesses, through the pandemic,” Deputy Labor Commissioner Daryle Dudzinski told the CT Mirror.
Having received an unprecedented, 750,000 applications for unemployment benefits since mid-March, the state agency has paid out about $4.4 billion in benefits to date. Roughly $1.6 billion has involved state benefits, drawn from Connecticut’s unemployment compensation trust, and more than $2.8 billion in various forms of enhanced federal aid for the jobless, funded through grants from Washington.
Dudzinski said about $118 million remains in the state trust, but labor officials estimate between $250 million and $350 million will be needed monthly between now and the start of October to cover state jobless benefits.
States routinely exhaust their unemployment trusts during recessions and other severe economic downturns. States then borrow from the federal unemployment reserves to replenish their benefits programs.
Unless other provisions are made, businesses in Connecticut would face a higher unemployment assessment from the federal government to repay the principal on any state borrowing. Local businesses also would face a higher state assessment to cover interest costs on these emergency loans.
Connecticut businesses already pay unemployment assessment rates ranging from 1.9% to 6.8% of taxable payroll — the first $15,000 earned annually by each employee — to support the state trust.
Businesses with large numbers of seasonal staff and others routinely laid off for various reasons tend to pay higher rates. Those that traditionally have few layoffs — and whose workers are least likely to draw unemployment benefits — pay the lower rates.
Dudzinski did not comment on how the administration would resolve any debt incurred to stabilize the state fund.
But Eric Gjede, a specialist in labor, employment and tax issues for the Connecticut Business and Industry Association, noted some states appropriated government funds into their respective unemployment trusts during the last recession to shield their businesses from higher assessments.
During the recession of the early 1990s, Connecticut borrowed funds by selling bonds on Wall Street to bolster its unemployment trust, also sparing businesses higher costs.
A recent report from Pew Charitable Trusts noted that eight states have transferred millions of federal coronavirus relief fund dollars into their trusts to shield businesses from higher assessments.
To date, Connecticut has used its $1.38 billion federal Coronavirus Relief Fund grant to support COVID-19 testing, to purchase protective gear and to provide other forms of relief to various healthcare providers, and to help cities and towns cover pandemic-related costs.
No assessment raise since ’93
The state hasn’t raised its base range of assessment rates on businesses since 1993. But it also has been many years — and in some cases decades — since it revisited other rules that determine the level of benefits laid-off workers can receive.
Whether Connecticut uses its resources to bolster the unemployment trust or not, CBIA also called this week for state officials to reconsider many of these rules, arguing that reforms now could help stabilize the program over the long-term.
These include raising the minimum earnings threshold to qualify for benefits. Currently, any worker earning $600 or more per year can receive unemployment. Most states, Gjede said, set a limit of $3,000 or more.
Connecticut also does not require laid-off workers, in some cases, to exhaust their severance pay before seeking unemployment.
And unemployment benefits currently are calculated based on the worker’s two-highest-earning quarters of the calendar year prior to being paid off. CBIA says it should be reflect at least three quarters, noting that season staff who only work half a year — and normally are unemployed the rest — currently take advantage of this rule and earn the same benefit as a worker paid at the same rate, but who works a full year.
Gjede said these changes have been raised by legislative committees in recent years, but none have gone for a vote before the full House or Senate.
“We could be in a better position for the next [recession] if we made just a few of these simple changes,” he added.