Addressing Proposals to Alter the Provisions of Act 124 of 2010 Summary, AIV, April 10, 2013

Addressing Proposals to Alter the Provisions of Act 124 of 2010 Summary Points ? Act 124 was a significant, compromise-driven package of tax and spending reforms to help restore and sustain a healthy UI Trust Fund. It relies primarily on increased taxes on employers, but also includes reductions in spending on unemployment benefits that are critical to reaching its goal. ? Because economic developments driving benefit demands and tax revenues are moving targets, most of the key provisions were tied to benchmarks of Trust Fund health rather than dates and dollar figures. The need for federal loans and their impacts on costs and benefits was known to be variable. ? Because the economy performed better than expected in 2010, employers retained and rehired more employees than had been expected. This reduced spending demands on, and increased tax revenues for, the Trust Fund (as well as the General Fund). This in turn reduced borrowing needs, which will reduce interest costs for the state and federal penalties on employers. It will also accelerate increases in state taxes and increases in benefits. ? Opponents to spending restraints in Act 124 now argue that benefits should be increased because employers are likely to avoid federal penalties that were forecast in 2010. But arguments to increase benefits out of fairness and equity related to avoided federal penalties are not supported by the facts. ? Employers are not the only or primary beneficiaries of the factors leading to lower federal tax penalties. Paying off loans earlier than projected will avoid $14.7 million in General Fund interest costs and lead to early indexing to wage growth of the taxable wage base and maximum weekly benefit. ? The biggest benefit has been for those who in 2010 were projected to be unemployed. Those who collected paychecks rather than unemployment benefits just in 2011 and 2012 alone can be estimated to have benefited by nearly $137 million, much more in just those two years than the entire $54.8 million in federal penalties employers are expected to avoid through 2015. ? When considering increasing unemployment benefits, it is also important to keep in mind that our weekly benefits relative to the state average wage are already 20% higher relative to the national average. The state UI tax burden on total wages is more than 63% higher than the national average. ? As for specific proposals for additional increases in the maximum weekly benefit, it is important to remember that our maximum weekly benefit relative to our average wage is already higher than the national average, even after being frozen since 2008, and will already start increasing again next year. ? With regard to an early repeal of the one-week waiting period, we would point out that it provides important benefit savings and encourages early return to work. All but 10 states have one. Under Act 124, the Department of Labor is to report on the merits of the waiting period by January 2015. ? The benefit changes proposed today are the same kind made in the decade before the last recession that helped accelerate the collapse of the Trust Fund. Then, the Fund had misleadingly large reserves. Today, the Fund is still in debt to the federal government and solvency is years away at best. ? Act 124 was the culmination of difficult but necessary compromises that caused pain for all. Undoing provisions of Act 124 now would violate the integrity of those compromises and undermine faith in legislative compromises today and in the face of future crises. www.aivt.org o po box 630, montpelier, vt 05601 o (802) 223-3441 phone o (802) 223-2345 fax