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Lamont Unveils Bipartisan Deal To Pay Off Huge Unemployment Trust Debt

Connecticut ranks last in the nation for personal income growth during the pandemic in part because it has failed to create enough high-paying jobs.

Gov. Ned Lamont unveiled a plan Tuesday that would preserve Connecticut’s debt-riddled unemployment trust fund by curbing benefits for workers and asking more from the business community as a whole.

But the deal, which was endorsed by both major business and labor coalitions, actually would reduce unemployment taxes starting in 2024 on about three-quarters of all businesses. Those that lay off high numbers of workers, though, would pay more.

“A robust, sustainably funded unemployment insurance system is Connecticut’s most important tool for keeping our families out of poverty and our economy in motion during a recession,”  said Lamont, who announced the deal during a late-afternoon news conference outside of state Department of Labor offices in Wethersfield. “I appreciate legislators and stakeholders working together to develop a common path forward on this critical issue.”

Connecticut, like nearly all states, has run up hundreds of millions of dollars in debt to maintain unemployment benefits since the pandemic began in early March 2020.

The state has borrowed roughly $700 million from the federal unemployment trust to date, and the projections hold that Connecticut’s debt may exceed $1 billion before the majority of its population has been vaccinated.

The state was paying weekly benefits to more than 390,000 filers during the worst of the pandemic last spring, and the weekly caseload still tops 190,000. By comparison, Connecticut lost about 120,000 jobs during the last recession, which stretched from December 2007 through mid-2009.

To whittle down more than $100 million per year off that debt, according to state officials, the state will take several steps starting in 2024.

Full details of the plan, which needs legislative approval and will go before the Finance, Revenue and Bonding Committee later this week, were not available late Tuesday.

But the measure contains three major cost-cutting measures that limit future benefits for the unemployed:

The minimum annual earnings required to qualify for unemployment would rise from $600 to $1,600, and then the number would increase annually according to the rate of inflation. Connecticut hasn’t raised the threshold since 1968.

The deal also suspends four annual $18 increases in the maximum weekly state unemployment benefit beginning in 2024.

And workers no longer could tap unemployment benefits until they exhaust any severance pay.

The compromise deal, which was endorsed by House leaders on the finance committee, Reps. Sean Scanlon, D-Guilford and Holly Cheeseman, R-East Lyme, also asks more from businesses, which pay the unemployment tax that fuels the state trust.

Businesses currently are taxed on the first $15,000 they pay their employees. That base would rise in three years to $25,000.

A second change would expand the maximum experience rate — a component of the unemployment tax that penalizes companies more heavily as they lay off more workers.

To mitigate those rate hikes, though, state officials lowered other elements of the tax, including the minimum experience rate and a special “solvency” rate imposed on all businesses to keep the fund afloat.

The net result of these changes, according to Lamont’s office, is that 73% of all businesses would pay less in unemployment taxes, while the remainder would pay more.

The agreement won the backing of the Connecticut Business and Industry Association and the state chapter of the AFL-CIO, and the Connecticut State Building and Construction Trades Council.

“These reforms are long overdue,” said David Roche, president of the trades council and general vice president of the Connecticut AFL-CIO. “In the land of steady habits, I’m encouraged by the compromise we were able to reach that will help to ensure the solvency of the unemployment trust fund. Over and over again, workers across this state have demonstrated their willingness to engage in good faith discussions to reach solutions.”

Chris DiPentima, president and CEO of the CBIA, called the package “historic” and said it would provide businesses the stability they need to recover from the pandemic.

“This package represents the most significant set of reforms in the history of the state’s unemployment system,” he said. “Many of the changes represent reforms CBIA has advocated for since the end of the last recession to address one of the business community’s top concerns – the need for more predictable, certain, and stable policies.”

But business and labor didn’t get everything they wanted.

Advocates for both sides have urged Lamont and legislators to use state borrowing or budget reserves to pay off at least a portion of the $712 million debt. There is no state contribution as part of the deal.

Connecticut’s bonded debt-per capita already is one of the highest in the nation, but the state does enjoy one of the largest reserves in the country. The slightly more than $3 billion Connecticut has in its rainy day fund is equal to 15% of annual operating costs.

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