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November 03, 2009

Lawmakers: State Unemployment Fund Needs Work

A new proposal by the Douglas administration to fix the state's battered unemployment insurance trust fund is expected to draw heat from opponents during a public hearing tomorrow.

Throughout the summer, a special legislative committee has been gainfully employed looking at ways to shore up a fund that House Speaker Shap Smith said “is in desperate need of reform. The fund has been in decline for many years and without reform will go bankrupt."

So, what to do?

The committee is looking a mix of solutions that include everything from reducing benefit levels to increased contributions from employers and short-term borrowing, among other things.

Last month, the biggest news that came out of the committee's hearing was a letter circulated to members by State Auditor Tom Salmon. Salmon recommended changing the maximum benefit to as little as $300, or the levels they were at in 2000. Three other states — Missouri, Nebraska and South Dakota — have this benefit level today.

In Vermont, the current maximum benefit level is $425, although the average benefit paid out is $309 a week.

A special legislative committee will meet at 1 p.m. in the Statehouse to hear from administration officials about a new proposal being floated by the governor. The public hearing will be held from 4 to 6 p.m.

The administration of Gov. Jim Douglas is proposing several changes, some of which opponents claim hurt laid-off workers more than employers — employers who haven't had to pay more into the system for years.

The administration's latest proposal would lower benefit levels from a maximum of $425 a week to $400, saving $5 million in 2010 alone, as well as other changes, including:

• reinstating a one-week waiting period from the time a person is laid off to when they can receive benefits, which would save about $8 million in 2010. This provision existed in 2000;

• calculating weekly benefits based on four quarters of wages versus only two quarters, and other changes to eligibility determination in order to save $11.3 million annually;

• removing the provision enabling employers to choose if a laid-off worker can collect unemployment and severance simultaneously. Now it is the employer's choice; and,

• reducing the amount of money part-time workers can earn while receiving unemployment benefits.

"The changes are driven primarily by increased borrowing of $30 million more than originally projected due to the lack of action by the legislature last year," said Labor Commissioner Patrica Moulton Powden.

The state projects it will need to borrow $110 million in FY 2010 versus the $80 million contained in the proposal submitted in January.

Not all of the governor's proposals would impact laid-off workers. A legislative change approved this year will begin taxing employers on the first $10,000 in wages per employee starting in 2010. The Douglas administration wants to increase that base level to $18,000 by 2013.

For the past two decades, the state has only taxed employers on the first $8000 in wages, and has never changed that amount.

The already enacted legislative change will increase contributions by $14 million in 2010. The administration claims further increases will generate $28 million in 2011, $22 million in 2012, and $20 million in 2013, as long as employment levels don't decline further than currently forecast.

The administration is also proposing a trigger to lower the taxable wage base if the fund balance gets too high, Moulton Powden explained.

Low-income and labor advocates say the administration's proposals — especially as they pertain to adjusting benefit levels — are short-sighted and punish the very people the fund is designed to help.

"A mix of short-term borrowing and longer-term, phased-in adjustments to contributions from employers is the best way to stabilize the workforce and give employers an opportunity to emerge from the recession intact," said Christopher Curtis, an attorney with Vermont Legal Aid. "The administration’s plan is out of touch with the needs of working Vermonters and their families, who are struggling through a difficult recession. Reducing or eliminating help for laid-off Vermont workers will only prolong the recession and impede the ability of Vermonters to get back to work.”

Curtis pointed out that the weekly benefit reduction would amount to $100 a month for some recipients, but Legal Aid opposes changing the amount of money a part-time worker can earn while receiving benefits, as well as moving to basing benefits on four quarters of work rather than the current two.

The latter change would affect seasonal employees who cannot find reliable employment year-round, Curtis noted.

 “The administration’s proposal is analogous to the bank bailout," added attorney Michael Sirotkin, who lobbies on behalf of labor groups. "After a quarter century of employer tax decreases, which predictably resulted in the crisis we are now in, the administration now asks laid-off workers to foot most of the bill.”

Sirotkin said unemployment benefits spur as much as $2.15 in economic growth for every dollar of benefits.

"Moreover, these unemployed workers and their families will be forced to rely more on taxpayer-funded social programs," Sirotkin added, "if the administration reduces benefit levels."

For a one week longer waiting period to generate $8,000,000 in savings for 2010 would mean that over 25,000 new applications would have to be processed in 2010. $8,000,000 divided by $309, the average pay out, equals 25,890 new applications. How many employees are there in Vermont and how many applied for unemployment in 2008 and 2009?

Older: To date for 2009, the monthly number of unemployed held steady around 26,000 for April, May and June. Before that, it was around 25,000. In September, however, that number dropped to just below 24,000. The report does say the annual savings declines after 2010.

Here is a link to the Vermont Labor Force statistics:

Thanks Shay. If the number of recipients of unemployment benefits holds at around 25,000 or 26,000 in a year, there is absolutely no way that the new enrollees in one year will reach a high enough number to generate a savings of $8,000,000. Remember the "plan" recommends that new enrollees will have to wait an extra week before drawing a check. Plus the average benefit at this time is $309 per week. Sounds like some of that "vodoo economics."

I totally agree with you. We need more stable jobs. I hope the government will come up with concrete structure in providing more jobs just like what the has been doing.

@ susan moore: If it's the gov't that provides the jobs, as opposed to the private sector, then you're not gaining anything vs. paying out unemployment. You're just trading one government expenditure for another.

Wanna stop the bloodletting of the unemployment fund? The Governor and the Legislature need to foster economic policies that create PRIVATE SECTOR jobs. FAST.

They seem incapable of accepting that fact, or unwilling.

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