The Senate Economic Development, Housing, and General Affairs Committee is expected after next week’s Town Meeting Week break to return to legislation, S.221, that would increase unemployment benefits by $100 million over the coming years. This would include more than $90 million directly from the UI Trust Fund, resulting in corresponding increases in UI taxes on employers.
Specifically, the bill would create a $25 increase on all weekly UI benefits, including the maximum benefit. As introduced, the first two years of this increase would be funded through a special fund created with $7.8 million in federal ARPA dollars, and thereafter it would be funded directly out of the UI Trust Fund.
Although the bill as currently drafted would create a permanent $25 increase in weekly benefits, it was clarified during AIV’s testimony on the bill last Friday that the Committee intends to add a cap on the overall increased payments, ending them after the expense of $100 million. Although the duration of these benefits over time will depend on the pace of claims over the coming years, the bill would ultimately cost Vermont employers approximately $92 million as the increased benefits flow through the Trust Fund to employer taxes.
AIV fundamentally opposes this increase in benefits and the resulting increase in UI taxes. Vermont UI benefits are among the highest in wage replacement in the country, and our UI taxes have consistently been at or near the highest in the country in recent years. There is no objective policy justification for this arbitrary increase in S.221, and it breaks the basic public trust underling the UI system that benefits will be reasonable, fair, and affordable and that taxes will be sufficient to cover benefits and maintain a reasonable reserve in the Trust Fund.
Employers are encouraged to watch for updates and alerts, and can contact us at email@example.com for more information or to discuss opportunities to engage on this issue.
S.221 is nominally intended to reinstate a $25 UI benefit increase, totaling $100 million, that was part of Act 51 of last year, legislation that included a number of UI-related provisions. Vermont’s UI program has to comply with certain federal requirements and standards, however, and the US Department of Labor determined last summer that the benefit increase in Act 51 was not allowable as designed and funded.
AIV strongly opposed the benefit increase originally included in Act 51.
The Act included a provision of critical importance to Vermont employers championed by AIV. Vermont’s UI statutes set employer taxes based on the most expensive benefit year within the preceding 10 years, and the extraordinary and anomalous COVID-driven costs of 2020 would have grossly distorted UI taxes over the next ten years – resulting in hundreds of millions of dollars in over-collected, unnecessary taxes. Even though the system would technically correct for this overcollection in the decades after 2020 naturally dropped out of the calculation, the overcollection up front in the meantime would have been too significant to leave unaddressed.
To address this, Act 51 simply removed 2020 from the calculation of UI taxes. This fixed the significant timing problem over the next ten years but did not actually change the overall long term tax liability of employers, which is ultimately tied to benefit costs.
However, rather than simply correct this unnecessary over- or pre-payment of UI taxes, key legislative leaders, particularly the leadership of the Senate Economic Development, Housing, and General Affairs Committee, refused to correct this tax anomaly unless Act 51 included an arbitrary $100 million increase in UI benefits. Unlike the removal of 2020 from tax calculations, this benefit increase actually did directly change the long term tax liability of employers – increasing it by $100 million.
As noted above, this increase, originally included in Act 51 and now included slightly modified in S.221, has no objective justification and violates the fundamental public trust underling UI benefits and taxes. AIV opposed the increase last year and will continue to oppose it for these reasons. As also noted above, please contact us at firstname.lastname@example.org if you would like more information or to otherwise discuss this issue further.