04/17/2023
April 14, 2023 Joint Committee on Finance, Revenue and Bonding SB 1237
Public Hearing Testimony of
Danté Bartolomeo
Commissioner, Department of Labor
Joint Committee on Finance, Revenue and Bonding
April 14, 2023
Good morning, Senator Fonfara, Representative Horn, Senator Martin, Representative Cheeseman and honorable members of the Finance, Revenue and Bonding Committee. Thank you for the opportunity to provide you with this testimony regarding SB 1237: AN ACT CONCERNING A PHASE-IN OF THE INCREASE IN THE UNEMPLOYMENT INSURANCE CHARGED RATE. My name is Danté Bartolomeo, and I am the Commissioner of the Connecticut Department of Labor.
The Connecticut Department of Labor (CTDOL) respectfully opposes this bill. SB 1237 presents multiple federal conformity issues, which subjects Connecticut employers to the potential loss of federal tax credits and CTDOL to the potential loss of federal administrative funding. In addition, SB 1237 substantially changes current law, as modified by the passage of Public Acts (P.A.) 21-200 and 22-67.
CTDOL has already begun work to comply with the January 1, 2024 effective date of these Acts.
P.A. 21-200 and 22-67 were carefully constructed in a way that assists employers in adjusting to the new statutorily prescribed rates through a phased in approach, while still complying with federal conformity requirements. The resulting law sets the maximum charge rate at 10%. However, for calendar years 2024, 2025, 2026, and 2027, it then applies divisors of 1.471, 1.269, 1.125 and 1.053 to lower every employer’s charge rate as well as set the maximum rate at 6.8%, 7.9%, 8.9% and 9.5%, respectively. The divisors are the mechanism in current law which phase in the maximum charge rate (and all rates), while also ensuring that no experience year will have a maximum charge rate less than the federally required 5.4%. Any company in an industry where the average benefit ratio increases by 1% or more also will see a downward adjustment in their benefit ratio.
However, SB 1237 presents many concerns including, but not limited to, federal nonconformity, additional long-term costs to employers, additional cost to the state, and a delay in achieving solvency for the Unemployment Insurance (UI) Trust Fund. The bill would reduce the maximum charge rate from 10% to 6.4% in 2024, 7.4% in 2025, 8.4% in 2026 and 9.4% in 2027, but continues to apply the divisors contained within current law. Consequently, once the statutory divisors are applied, the maximum charge rate for 2024 would fall below 5.4% (lines 185-192 of SB 1237) and USDOL has confirmed that CT would then be out of conformity with federal law.
Next, by decreasing the maximum charge rates as described above, substantially less Unemployment Insurance (UI) Trust Fund revenue would be generated each year. The effect of the decrease in the maximum charge rate is an estimated loss of approximately $134M over the next four years, of which 46% would be experienced in 2024. Therefore, the UI Trust Fund would not reach solvency until a date well beyond the current estimate of 2029 or 2030, thereby also extending the requirement that all employers pay a solvency tax until the Trust Fund reaches solvency. This delay could also result in taxable employers experiencing a reduction of FUTA tax credits and paying more federal taxes beyond May 2024 as is currently projected.
Moreover, USDOL confirmed that the 25% cap on an employer’s annual charge rate increase contained within SB 1237 is not in conformity with federal law. Notwithstanding this confirmation, CTDOL analyzed historic data and determined that the implementation of a 25% cap would cost the Trust Fund (and therefore all CT employers not affected by the cap) a projected $58M per year.
It should also be noted that CTDOL has already incurred substantial expense as well as dedicated time and resources to begin the extensive technological changes required in law by Public Acts 21-200 and 22-67. CTDOL must continue this work and accept ongoing costs in endeavoring to comply with the January 1, 2024 implementation deadline, unless and until SB 1237 supersedes current law. Should SB 1237 pass, implementation would take, by conservative estimate, 12-16 months from the effective date. As drafted, this bill would result in a significant period in which the UI program would have an inability to charge employers and receive tax revenue to support the UI program, again resulting in federal non- compliance. In addition, much of the work to comply with the changes herein would need to begin anew and additional state funding would be required to compensate for the work which has been done since February 1, 2023. Therefore, a new fiscal impact for SB 1237 will need to be assessed.
Given the considerations listed above, it is likely that implementing SB 1237 as written would jeopardize the entire federally funded UI program and devastate the CT workers and families who rely upon it.
Thank you for the opportunity to provide the Committee with this testimony. My team and I are available to answer any questions that you may have regarding SB 1237 and look forward to joining any future discussions if this proposal moves forward.
Connecticut Department of Labor • www.ct.gov/dol
An Equal Opportunity/Affirmative Action Employer