$100 Million Increase in UI Costs Over Coming Years Included in “Economic Development” Bill

The recently passed final conference report for S.11, which became the latest and last vehicle for attaching a wide range of economic development and other provisions (see post on these provisions here), includes provisions to arbitrarily increase UI benefits over the coming years, ultimately adding a total of $100 million in new costs that will be passed on to employers’ UI taxes.

The increases are provided in two stages.  First, this July there will start a $60 increase in the maximum weekly benefit amount.  This will continue until a total of $8 million is spent on top of regular UI costs, projected to be last approximately three years.  Second, beginning in July 2025 (unless necessary upgrades to the UI computer system come online sooner) there will be a $25 increase on all weekly benefits.  This will continue until a total of $92 million in additional benefits is spent, but it is unclear how many years this will last.  It is widely expected that necessary upgrades to the UI computer system will not be ready in time to reliably administer the $25 change in calculating weekly benefits below the maximum benefit by 2025.  However, new legislation would have to be passed to postpone this broader benefit increase, setting up a potential conflict between the law and the capability of the Department of Labor.

AIV has fundamentally opposed 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, 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.

AIV will be continuing to work on this issue and will seek opportunities to repeal these provisions in the future.   Employers are encouraged to watch for updates and alerts, and can contact us at info@aivt.org for more information or to discuss opportunities to engage on this and other UI issues.

As for the conference report for S.11 itself, however, it has passed the Legislature  and is waiting the Governor’s action.  Given the number of provisions providing financial support for certain businesses and other economic development provisions, however, it is unlikely that the Governor will veto the bill.

Background

These provisions in S.11 are 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.11, 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 info@aivt.org if you would like more information or to otherwise discuss this issue further.