GOP: New measures won't solve unemployment shortfall
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By Peter Hirschfeld VERMONT PRESS BUREAU - Published: June 4, 2009
MONTPELIER – Lawmakers on Wednesday approved special-session legislation that will help staunch the fiscal bleeding in the state's unemployment trust fund. But Republican critics of the measure say the action will do little to solve the $160 million unemployment shortfall projected for next year.
In one of the final bills of this two-day June session, the House and Senate imposed new unemployment tax hikes on employers and froze benefits for unemployment recipients. The provisions will save the unemployment fund about $18 million in calendar year 2010.
Gov. James Douglas, who called the lack of unemployment reform a major failure of the legislative budget proposal, said Wednesday's bill only dances around the edges of a looming fiscal crisis and defers the tough action needed to restore solvency to the fund.
"The Legislature is leaving here with hundreds of millions of dollars in deficits," administration spokeswoman Dennise Casey said. "They seem to take the approach of 'we'll deal with this later.'"
In fact, House and Senate leaders agreed that they will deal with the unemployment problem later. Language in the bill calls for a 12-person study committee, comprised of representatives from the legislative and executive branches, to meet during the summer and draft a proposal for consideration next January.
Senate lawmakers, who had sought a more aggressive approach to the problem, said even with the bill passed Wednesday, Vermont's unemployment fund will be about $200 million in the red by 2018.
"This issue was overshadowed by the larger debate over the budget and other legislation," Sen. Vince Illuzzi, an Essex County Republican, said Wednesday. "It's an issue that will live with us and (future lawmakers) at least through 2018."
Illuzzi said members of his chamber wanted more substantive reforms, which would have cut millions of dollars in unemployment benefits paid to out-of-work residents.
"The House was unwilling to go beyond what we have in this bill," Illuzzi said.
The unemployment reforms were part of a so-called "companion" bill filled with a number of measures supported by Douglas and more conservative members of the Legislature. The research-and-development tax credits, scholarship funding, sales-tax holiday and capital-gains exemptions in the bill addressed some of Douglas' most pointed criticisms.
Most Statehouse observers speculate that the companion bill was designed to woo override votes from conservative Democrats who might otherwise sustain Douglas' veto. And the initial companion bill contained some of the more aggressive reforms sought by administration officials.
However a significant bloc of pro-labor Democrats and Progressives effectively scuttled the unemployment agreements.
"We have had an under-contribution from employers for the last eight years, which has gotten us to the point we're at today," Rep. David Zuckerman, a Burlington Progressive and member of the Working Vermonters Caucus said Tuesday.
More than 20 members of that caucus met with House Speaker Shap Smith on Tuesday to underscore their opposition to the unemployment reforms.
"The problem isn't that the benefits were too big," Zuckerman said. "And it's unfair to ask out-of-work Vermonters to solve this problem."
The initial unemployment legislation would have seen maximum benefits frozen at $425 (they are scheduled to hit $438 beginning July 1), reduced benefits for those receiving below the maximum, and added a provision making it more difficult for employees fired for gross misconduct to receive unemployment wages.
The initial agreement additionally would have instituted either a one-week waiting period for unemployment to kick in, or a further reduction in below-maximum benefits.
Commissioner of Labor Patricia Moulton Powden said Vermont has some of the most generous unemployment benefits in the nation. Solving the problem, she said, will require sacrifices from both beneficiaries and employers.
"I'm very disappointed that we don't seem to be any closer to restoring solvency to the fund," Moulton Powden said. "Unfortunately it's going to cost Vermont employers and Vermonters even more."
The Douglas administration said that Wednesday's bill freezing rather than reducing benefits places a disproportionate financial burden on employers, who will pay roughly $13 million more in unemployment taxes in calendar year 2010. Beneficiaries, they say, are forgoing only $5 million worth of benefits.
"Any approach needs to be balanced, and raising taxes on businesses and not making adjustments to benefits is not the kind of complete or even temporary fix that will get us headed where we need to go," Casey said.
Administration officials said simply freezing unemployment wages does not go far enough. A reduction in maximum benefits, from $425 to $409, they said, would begin to make headway.
Bill Driscoll, head of Associated Industries of Vermont, said Vermont needs concessions from beneficiaries as well as employers to solve the dilemma.
"The reforms have to be balanced between employee contributions and benefit reductions," Driscoll said.
Under the new legislation, employers will pay taxes on the first $10,000 of employee wages, up from the first $8,000 for which they're currently responsible. Driscoll and Moulton Powden said that squeezing business owners with higher payroll taxes will end up harming a large number of working Vermonters.
"When employers pay more taxes, they have less money for payroll. And when they have less money for payroll, fewer people are working, and that's the whole problem," Moulton Powden said.
As it stands, she said, Vermont will have to borrow $160 million from the federal government in 2010 to cover unemployment benefits. In fiscal year 2010, the debt service alone on that loan will total an estimated $8 million to $10 million, according to Sen. Susan Bartlett, chairwoman of the Senate Committee on Appropriations.
Zuckerman said unemployment – a federal program administered by the state – is a system designed precisely for recessions like the one Vermont finds itself in now. Cutting the benefits of unemployed Vermonters, he said, will only exacerbate the downturn.
"There are many states across the country already borrowing millions from the federal government," Zuckerman said. "The system is designed to work this way so we don't have to cut benefits drastically in tough economic times."
The study committee, lawmakers said, will return at the beginning of the next session with a plan to remedy the unemployment deficit. For many of them, the issue will stand at the forefront of the fiscal year 2011 budget deliberations.
Sen. Hull Maynard, a Rutland County Republican, called the problem "a much more alarming situation than the world around us perceives."
peter.hirschfeld@rutlandherald.com
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