After my post last week, I received a thoughtful response from the Connecticut Department of Labor that is worth consideration. Much of it has already been transmitted in a column by Dan Haar in the Courant, but I think in the interests in fairness, it’s worth reprising here.
In it, the CTDOL suggests that it decided not to opt for the “waiver” because it is “not in the best interest of our state’s employers.
Part of the debate on the issue is really a debate on how quickly the state should pay off loans on the trust fund.
As background, the state’s unemployment insurance Trust Fund became insolvent in October 2009 due to, what the CTDOL has termed, “the increased number of unemployment claimants as a result of the economic downturn.”
Just a few years later, state employers began paying back the outstanding federal loan balance through Federal Unemployment Tax increases, and also began paying interest on that loan through a special assessment. At this point, though, $110 million is still owed to the federal government.
If the state were to apply for a waiver from the Benefit Cost Ratio add-on, this would extend the length of the loan, which would require employers to pay more in the long run, according to the CTDOL.
By opting not to take the waiver, the CTDOL suggests that employers will be able to pay an additional $60M toward the loan. In doing this, the CTDOL estimates the federal loan will be paid off by September-November 2016. And it is this timing that proves to be critical in an analysis.
As one CTDOL official is quoted as saying in Haar’s column: “It’s all based on projections….We have now a greater certainty … that this will be the last year we have this federal penalty.”
The CTDOL’s response has some appeal to it as well. But for employers, either argument (from the CBIA or the CTDOL) is really is a lose-lose proposition. Ultimately, the loan has been sticking around too long and employers are paying the price. Pay now, or pay later. Either way, it’s still a high price for a loan from back in 2009.