A BILL UNDER STUDY by the state legislature to freeze business UI payments may be a short-term solution, but it does not solve the longer-term problem of how to maintain the fund’s solvency in the future .
“It’s a perfectly reasonable short-term solution for our UI deficit, but it’s a missed opportunity to address the fact that we were underfunding this system long before the COVID crisis,” Evan Horowitz, Executive Director of the Center for State Policy Analysis at Tufts University, said after the bill was released.
Evidence submitted to the Senate Ways and Means Committee this week ahead of the vote on the bill reflects the longer-term issues.
The unemployment system is funded by payments from companies, based on the number of employees made redundant and the amount of money in the system. Because generous benefits and high unemployment in 2020 have drained the system, business payments are expected to rise from an average of $ 539 per employee in 2020 to $ 858 in 2021 and over $ 900 each of the following three years. The bill would freeze the fee schedule in 2021 and 2022, keeping next year’s increase at around $ 635, according to the Baker administration.
The problem for companies, however, is that they will still have to pay unemployment benefits. The bill would simply borrow money, so that payments would be made over the life of a bond – 10 or 30 years, depending on which version of the bill is passed – rather than immediately. And there will be a fee for borrowing money. All of these costs would be paid for by a new tax imposed on businesses.
Many business owners argue that this is unfair. They have been forced to shut down during the COVID pandemic due to state government mandates, so why should they pay the price?
“Asking small businesses to cover the state’s interest charges for the loan that the Commonwealth will take from the federal government to cover the costs of the unemployment insurance program seems a bit unfair when employers haven’t caused the unemployment problem, ”wrote Robert O’Koniewski of the State of Massachusetts. The Automobile Dealers Association testifies before the Senate Ways and Means Committee. “In fact, if you were to ask business owners at the time who were forced to shut down or operate under severe state restrictions, almost one person, they would have expressed a desire to continue doing business. business as usual while respecting various and necessary state health and safety. protocols.
Chris Carlozzi, state director of the National Federation of Independent Businesses, similarly wrote that many small businesses were forced to lay off employees for the first time due to state-imposed closures. Carlozzi expressed his support for the tariff freeze. But he argued that in the future, Massachusetts must reform the unemployment insurance system to avoid prohibitive costs.
Carlozzi cited a study by Tax Foundation ranking Massachusetts unemployment insurance system at 50e in the country with regard to the burden imposed on businesses by taxes on unemployment insurance. “Part of this ranking among the worst in the country is due to our extremely generous benefits and lax eligibility requirements,” Carlozzi wrote. For example, Massachusetts only requires a person to work one quarter before they can qualify for benefits, while most states require two quarters. Massachusetts offers up to 30 weeks of benefits while most states offer 26.
“While Bill 89 addresses the immediate need for tax relief for unemployment insurance, it does not begin to address some of the long-standing problems associated with the unemployment insurance system in Canada. Massachusetts, ”Carlozzi wrote.
Carlozzi notes that some states have used federal money from the CARES Act, a coronavirus relief bill, to replenish the UI trust fund, so the burden does not lie entirely on employers. Massachusetts doesn’t.
Jon Hurst, president of the Retailers Association of Massachusetts, echoed Carlozzi’s comments and urged lawmakers to withdraw money from the new US federal bailout law to replenish the fund. “Many employers are still not on their feet yet, and asking current and future employers and entrepreneurs to pay deferred taxes that are amortized over several years could stunt our economic recovery and job growth,” Hurst wrote.
The bill would create a new commission to study and develop recommendations by December 2021 on the long-term solvency of the UI trust fund. The commission would be responsible for assessing whether changes are needed in the way rates are calculated; examine the industry-specific impacts of the unemployment system; and looking at how other states have approached the issue.
Senator Patricia Jehlen, a Democrat from Somerville who sponsored a similar bill to create a commission to study unemployment insurance, wrote in her testimony: “This current funding crisis is not just the result pandemic but is the result of the combined size of the unemployed workforce. and years of underfunding of the trust fund.
Jehlen said the funding crisis has a real fiscal impact, since the trust fund has never met the solvency requirements set by the federal government to obtain interest-free loans for an extended period. She noted that unemployment funds in other states were able to weather the COVID crisis without resorting to borrowing from the federal government, as Massachusetts did.
There is a debate on who will be on the commission. The commission proposed by Jehlen would have 15 members, while the final bill that was passed by the House proposes 21 members. Jehlen’s commission would include two individuals appointed by the AFL-CIO, while the House commission has only one. The House committee has two more members representing business groups than Jehlen’s, as well as a member appointed by the Greater Boston Legal Department and two policy experts from the Massachusetts Taxpayers Foundation and the Center for State Policy Analysis. from Tufts University.
A report on the Unemployment Insurance System by the Center for State Policy Analysis states that while a temporary rate freeze may be necessary, the repeated rate freeze, as Massachusetts has done for the past decade, “is a recipe for long-term insolvency and future debt “.
The report states that the main problem is that the way the system is designed, benefits follow wages. But taxes collected do not increase as wages rise, because employers pay taxes only on the first $ 15,000 of wages they pay each employee.
“Massachusetts’ unemployment insurance system virtually guarantees funding shortfalls,” the report says.
Some possible solutions, the report writes, include imposing a higher portion of wages; the addition of a new tax on employees, as is done to finance Social Security and Health Insurance; reducing benefits so that they are more in line with other states; and increase the maximum tax rate paid by businesses with a history of layoffs.
The Massachusetts Taxpayers Foundation, in its policy analysis, wrote that freezing rates and borrowing is a reasonable solution to addressing the short-term fund’s current budget problems “while giving policymakers more time to consider other system improvements needed to address the identified shortcomings. naked by COVID-19 ”.
The potential life of the bond has been corrected.