Patrick Questions Preventing Unemployment Insurance Rate Hike (State House News Service)

By Matt Murphy
Posted Jan 12, 2011
   
Boston — Private business groups are urging the state to curtail public benefits to the unemployed as the accounts used to fund those safety-net programs teeter on the brink of insolvency and Bay State employers, trying to rebound from the recession, face significant fee hikes.

The Massachusetts High Technology Council has called on Beacon Hill leaders to freeze a scheduled increase in unemployment insurance rates that are due to rise early this year by $259 per employee to cover a projected $202 million deficit in the fund at year's end. The increases, they argue, will make it more difficult for businesses to create jobs and put an extra drag on the economic recovery.

In addition to the rate freeze, the council is calling for the number of weeks an unemployed resident is eligible to collect state unemployment benefits to be reduced to 26 weeks from 30 weeks, which would bring Massachusetts in line with all 49 other states. The business group also wants workers to be required to hold a job for 20 weeks before they become eligible for public benefits, up from the current 15-week minimum. The ideas have failed to gain traction for years in the Democrat-controlled Legislature.

"For too long the state has adopted a Band-aid approach to fixing the nation's costliest and most unpredictable UI system, which puts Massachusetts employers as a significant disadvantage to peers in competitor states and nations," Council President Christopher Anderson and Vice President James Rooney wrote in a letter this week to the Legislature.

The state paid out $1.63 billion in unemployment benefits between Dec. 1, 2009 and Nov. 30, 2010 while taking in just $1.55 billion from employers, forcing the state to rely on no-interest federal loans to cover benefits to 237,000 Massachusetts residents currently collecting. Unemployed workers are now eligible for up to 93 weeks of benefits due to federal extensions, though benefit payments over the first 11 months of 2010 in Massachusetts were down 32 percent and initial claims were down 23.4 percent over the same period the year before.
Under the scheduled rate increase, employers would be assessed $897 per employee for unemployment insurance, as opposed to the $638 they paid in 2010. The first payments from employers to the state are not due until the end of the first quarter, and lawmakers are weighing whether to intervene.

Gov. Deval Patrick has successfully pushed for the past two years to forestall scheduled increases in UI rates in order not to stymie employment growth as the private sector struggled to add jobs during the recession. Patrick, however, said another rate freeze could be difficult with hundreds of thousands of residents still depending on unemployment benefits to get back on their feet.

"I'm very concerned about what the impact is on businesses, particularly small businesses, if the regular schedule in the statute takes effect but it's a serious question whether we can afford to freeze those rates. You know, we are recovering. We're not recovered and there's still a lot of people who have to turn and are turning to their government and their neighbors through their government for help," Patrick said.

The increase in UI rates for employers comes on top another hike in fees on employers to cover the cost of medical benefits for the unemployed in Massachusetts. The Unemployment Health Insurance Rate Review Board has already voted to raise the rate on employers in 2011 to $50.40 per employee, up from $33.60 in 2010, to help cope with a $95 million deficit project by the end of the fiscal year.

Associated Industries of Massachusetts has called for the Medical Security Trust Fund, used to pay those medical benefits to eligible residents, to be consolidated into the state's Commonwealth Care program that allows individuals who have lost their jobs and income to purchase short-term health insurance through the Commonwealth Connector Authority.

Anderson and Rooney argued that freezing the UI rate and reducing the duration of benefits can be accomplished without reducing weekly benefits checks. They also said past freezes without accompanying reforms only served to accelerate the rate at which the fund was depleted.

"The Commonwealth retains the option of borrowing from the federal government at low or no interest as a preferred alternative to dramatic rate hikes. This option is less costly to the state than adding an undue burden on businesses during a tenuous economic climate," Anderson and Rooney said.

The Council has also called for increasing the timetable for calculating payroll taxes from the prior 12 months to the past three to five years, and reforming the rate setting mechanism to make UI rates more stable and predictable.

Senate President Therese Murray did not rule out another rate freeze, but said it could prove more difficult this year now that the state's reserves built up in good employment years have been depleted.

"I think that's probably going to be a discussion that we'll all have. We've done it twice now, two years in a row. The agreed upon schedule, everyone said in the good times, 'We don't need the money, we don't need the money,' so we didn't take the money. Now we've had to freeze it the last two years and the till is empty," Murray said.

Asked to clarify whether that meant the state could no longer afford to freeze rates, Murray said she had not made a decision.

"No I didn't say that, but right now because we didn't take in the money in those other years and because we've had so many months of unemployment it's running (a deficit) and we had to borrow from the federal government," Murray said.

The UI rates switched, according to statute, from Schedule E to Schedule G on Jan. 1, 2011, an increase that will generate more than $2.2 billion in estimated employer contributions to cover more than $1.9 billion in estimated benefit payments for the year.

The state plans to release December unemployment numbers on Jan. 20 offering the latest glimpse at the job scene in Massachusetts after the unemployment rate climbed slightly in November to 8.2 percent from 8.1 percent when the state shed about 8,600 jobs, primarily in the leisure and hospitality sectors. The state's unemployment rate was still well below the national average of 9.8 percent.

According to the High Technology Council, Massachusetts has the second highest unemployment insurance rate in the country behind only Rhode Island.