Connecticut employers will be forced to pay the highest unemployment tax in the country as the interest rate the state pays on a federal loan goes up an additional 0.5 percent in January.
Five years ago the state borrowed $1 billion from the federal government when its unemployment trust fund went broke. As the state hits the five year mark on the loan, it has decided not to seek a waiver from the higher interest rate and instead allow employers to take the hit.
That means employers will be paying the additional 0.5 percent on top of the additional 0.3 percent they’ve been paying over the first few years of the loan.
Of the $1 billion Connecticut borrowed, the state still has an outstanding balance of $432 million. Employers will be forced to pay $161 per worker starting in January. If the state had sought the waiver the amount would be about $35 less per employee, according to the Department of Labor’s Unemployment Insurance Tax Director Carl Guzzardi.
Guzzardi said the state decided not to seek a waiver because it would have increased the loan balance by $45 million and the department decided to take more of a long-term approach.
“We have to take a longer range approach,” Guzzardi said Thursday. “The goal here is to dig out of the hole before there’s another recession.”
At the moment the unemployment trust fund could not sustain another recession, he added.
Eric Gjede, assistant counsel with the Connecticut Business & Industry Association, said Thursday that it was the state that took on the debt and the loan, but it’s employers who are paying it back “and the recession is still real for us.”
The debt is paid entirely by employers and the size of the loan is what determines the interest rate.
It’s a tough tax for employers to swallow because during these past five years because the state hasn’t attempted to make any benefit reforms, Gjede said.
It might be easier to understand the Labor Department’s decision not to seek the waiver, if the state was looking to reform the system and lower the cost to employers by taking simple measures, like asking the unemployed to wait one week before collecting benefits, he said.
For example, 41 other states have a one week waiting period before paying out unemployment benefits, Gjede said. It’s estimated the reform would save employers in Connecticut about $30 million a year.
Another simple reform would force unemployed individuals after six consecutive weeks of unemployment to post their resume online. Gjede said research shows people who post their resume online get a job one week sooner than a person who doesn’t.
“These are very simple things they need to do,” Gjede said. “But there’s a reluctance. Everyone is more than willing to raise taxes on employers and there’s no willingness to do any benefit reform.”
Incoming House Republican Leader State Rep. Themis Klarides was critical this week of the Labor Department’s decision not to seek the waiver. She wrote Labor Commissioner Sharon Palmer and asked for further explanation of the decision.
“Hidden, unexpected taxes like this one compound the problem, especially for small businesses struggling to get by,’’ she said.