coronavirus in connecticut

Unemployment Trust Fund Goes Broke, Businesses on the Hook

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The coronavirus pandemic has had a devastating impact on Connecticut’s workforce. A record number of people have filed for unemployment this year and hundreds of thousands of residents are currently collecting those benefits. 

As a result, the unemployment insurance trust fund has run dry and the state is borrowing hundreds of millions of dollars from the federal government to pay claims. 

“The state takes out the loan, but it’s actually businesses that pay it back with interest. In fact, significant interest,” Eric Gjede, vice president of government affairs for the Connecticut Business and Industry Association, said.

Connecticut’s real unemployment rate is around 10 to 11%, according to the Department of Labor. 

The state’s unemployment insurance trust fund ran out of money in August, forcing the state to borrow $402 million from the federal government. It typically raises around $800 million per year. The state has the ability to borrow up to one billion.

Since March, the state has disbursed $5.5 billion in state, federal and extended unemployment benefits.

“I think we’re going to end up using the entire billion we have been approved for,” Gjede said.

Gjede said he is hearing from businesses that are worried about the additional interest they will have to pay.

When the state borrowed nearly a billion dollars from the federal government during the Great Recession of 2008, it took seven years to repay with additional interest and a special assessment on businesses.

“As we know from the last recession, some of that interest had to be paid for by businesses through special assessments, which were on top of what they already pay in unemployment taxes,” Gjede said.

“Our unemployment tab to the federal government was up in the double digits of tens of thousands of dollars,” Tim Adams, of J. Timothy’s Taverne in Plainville said.

Adams said restaurants especially will be hard-pressed to find the money to pay an increase in the unemployment tax, which could be tens of thousands of dollars for a company with 75 to 80 employees.

“Not only did we see our unemployment rates increase, cause they’re based on an extended look back over several quarters, but we also got a love note in the mail from the federal government, telling us we were now being prorated and would be paying the loan, the penalty and the interest from the money the state didn’t repay,” Adams said. 

Typically, businesses are penalized for laying off employees, but the pandemic essentially forced businesses to layoff employees.

“There was an executive order put in place to not penalize businesses as a result of that and that was extended out to February,” Gjede said. 

February is when Gov. Ned Lamont’s emergency powers expire so it will be up to the legislature to decide how the federal loan is repaid.

“We don’t know what happens after that. That’s going to be interesting,” Gjede said. 

The legislature could make sure businesses aren’t penalized for laying off employees as a result of the pandemic. 

“Absent some sort of legislative action people's unemployment taxes are going to go up significantly through no fault of their own,” Gjede said.

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