To: Members of the Massachusetts General Court
From: Christopher R. Anderson, President and James D. Rooney, Vice President
Date: January 10, 2011
Re: High Technology Council Calls for UI Rate Freeze and Comprehensive Reform to Create 10,000 New Jobs and $3.9 Billion in New Wages

The Massachusetts High Technology Council calls on the state Legislature and Governor to prevent a scheduled 40 percent Unemployment Insurance rate increase for employers effective January 2011. Saddling employers with more than $200 million in new costs at this time would imperil the state’s economic recovery and hinder job growth.

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 at a significant disadvantage to peers in competitor states and nations. In addition to the rate freeze, the Council also calls for wider comprehensive reform of the state’s UI system that would create 10,000 new jobs, $3.9 billion in new wages and $30 million in new state revenue over the next decade.

Rate Freeze

A deficit in the state’s Unemployment Insurance Trust Fund exacerbated by an uncompetitive set of statutory requirements has prompted an increase in the average UI cost per employee to the maximum amount permitted by law, resulting in a 40 percent increase over last year’s rate. Employers fund 100 percent of state UI bills and higher taxes will only prolong the state’s economic and fiscal recovery. When payroll and other costs of doing business increases become unpredictable and uncompetitive, jobs are either reduced or sent to lower cost environments.

A 2008 study comparing state business climates ranked Massachusetts as having the second highest UI tax rate in the US (behind Rhode Island). By contrast, states such as North Carolina and California, which compete for many of the same tech jobs that dominate our economy, ranked as the 6th and 16th lowest cost states, respectively. Council members have repeatedly cited UI rates as a competitive disadvantage to doing business in the Commonwealth. The past rate freezes by the state Legislature without needed reforms have only accelerated the rate at which the UI Trust Fund balance has been depleted. The 2011 rate increase will boost the average cost per employee to $897, up from $638 in 2010.

We believe in a fiscally solvent UI system to support workers who need it, and freezing UI rates will not reduce the amount of weekly benefits paid out to displaced Massachusetts workers. The Commonwealth retains the option of borrowing from the federal government at low or no interest as a preferred alternative to dramatic rate hikes (as last championed by newly-elected Gov. Weld in 1990). This option is less costly to the state than adding an undue burden on businesses during a tenuous economic climate.

Comprehensive Reform

Beyond the immediate need to freeze rates, as was done the previous two years, the Council calls on legislative leaders and administration officials to adopt a comprehensive set of reforms to make our UI system competitive for the long term while protecting the benefits of those currently without a job.

We recommend the following four steps to reform:

Providing benefits for 26 weeks – Currently, all unemployed workers in Massachusetts are eligible for 30 weeks of benefits, and in 49 other states benefits last 26 weeks. We recommend bringing Massachusetts in line with every other state in the nation by providing 26 weeks of benefit payments.

Strengthening eligibility requirements – Massachusetts currently allows an individual who has been working for 15 weeks to be eligible for the same benefits as someone who has been in the workforce for 20 years. We recommend a minimum of 20 weeks, which is still low but more competitive with other state systems. We also recommend requiring earnings for eligibility over two quarters, which is the practice in a majority of other states.

Increasing the time period for computing payroll taxes – Massachusetts is one of only three states that determine UI taxes based upon the prior 12 months of payroll; 47 states use payroll paid for the past three to five years.

Replacing rate-setting mechanism – We suggest creating an automated rate-setting system that accounts for Trust Fund balance, unemployment data and economic conditions. A new rate-setting mechanism will make UI costs more stable and predictable without the need for annual legislative action.

None of these needed reforms will reduce the amount of weekly benefits paid out to displaced workers, which are the highest in the nation. Overall, Massachusetts pays out more on average to its unemployed workers than any other state – in some cases paying 150% of the benefit amount of key competitor states.

According to an upcoming Council-sponsored study on the state’s business cost structure, a commonsense reform initiative (including these key elements and other technical changes) will provide Massachusetts with more than 10,000 new jobs and $3.9 billion in new wages over the next 10 years, and, unlike most budget-based tax cuts, will not take much needed revenues off the table. In fact, according to our projections, reforming UI will actually generate $30 million in new income and sales tax revenue to help fund state program priorities.

These job and revenue projections only measure the direct impact of reforming UI. Making meaningful reforms to the UI system will create a more competitive business climate which will lead to more employer investment in Massachusetts.

Thank you.