Business groups urge passage of Baker’s unemployment insurance bill

MASSACHUSETTS BUSINESSES  are begging the Legislature for relief from a hefty anticipated increase in unemployment insurance costs next year.

Gov. Charlie Baker introduced a bill that would lessen the hit to businesses over the next two years, and in written testimony to the Joint Committee on Labor and Workforce Development, business groups are urging lawmakers to pass Baker’s bill quickly.

The Legislature has a tight time frame in which to act. The unemployment insurance increase would go into effect January 1, although the taxes are not due until the end of the first quarter. Additionally, the legislative session ends Tuesday, January 5 ,so if lawmakers do not act by then, Baker would have to refile his bill in the new session, which starts the next day.

Baker told lawmakers, in a letter to the Joint Committee on Labor and Workforce Development, that time is of the essence in passing the bill since the administration typically notifies employers of their unemployment insurance rates before the end of the calendar year, so they have time to plan. “During this time of unprecedented economic challenges, it is even more critical that the Commonwealth provide employers the predictability and clarity they need as they enter the new year,” Baker wrote.

It was a sentiment echoed by business leaders. “Employers are deciding now how their staffing will look for next year, so the Legislature must act soon on this critical issue,” Chris Carlozzi, director of the National Federation of Independent Business in Massachusetts, wrote.

Carlozzi said businesses were forced to lay off and furlough employees due to state-mandated, pandemic-related closures and capacity limits, and many small businesses are in danger of permanent closure. “The Commonwealth will look to small businesses to retain and create new jobs in order to fuel the much-needed economic recovery,” Carlozzi wrote. “But that is infinitely harder to do if it becomes prohibitively more costly to retain or create those jobs.”

The problem is the state’s unemployment insurance system was created for normal times, when contributions from businesses can offset the benefits paid out. However, a pandemic that forced the entire economy to shut down at once drained the unemployment insurance trust fund. The state borrowed federal money to keep it solvent this year, but that must be repaid. The trust fund is expected to have a more than $4.5 billion deficit by the end of 2021 and, without additional relief, Massachusetts employers will have to foot the bill.  Under current law, businesses could expect a 60 percent rate hike in January.

Under existing law, the rate that employers pay changes based on how much money is in the unemployment insurance trust fund reserves. That approach is meant to ensure that the money coming into the fund balances the money going out. Baker’s bill would freeze the rate schedule where it is today for the next two years, rather than moving to the schedule that should go into effect due to the trust fund’s depletion. According to the Baker administration, the average per employee cost for businesses would rise from $539 this year to $635 next year under his bill, instead of the $866 that is anticipated without any changes.

Baker estimates that businesses would save $1.3 billion in unemployment insurance costs over the next two years if his bill becomes law.

The state would issue up to $7 billion in bonds to repay the federal government and keep the fund solvent. Those bonds would have to be paid back over time by employers – not by taxpayer money – but the money could be repaid over the life of the bond, up to 30 years, rather than immediately.

A new two-year surcharge – of an unknown amount – would be put on employers to cover interest payments on the federal loans, due in the fall of 2021, if the federal government does not waive the interest.

Of 17 pieces of testimony submitted by individuals and groups to the legislative committee considering Baker’s bill, a majority were from business groups urging lawmakers to swiftly pass the relief.

The Associated Subcontractors of Massachusetts wrote that the construction industry is hit particularly hard by the unemployment insurance assessment, because of the seasonal and temporary nature of construction work. “Construction employers cannot control when construction projects begin or end, and they cannot keep workers employed if there is nothing to build,” wrote the trade group’s CEO Michael McDonagh. “They are at the mercy of the market – and often, at the mercy of the weather as well.”

“Without this legislation and with a looming 60 percent increase in unemployment rates, it will be even harder to do business in a business that is already hard,” the subcontractors wrote, adding that construction companies faced with the rate hike will be incentivized to “stretch” existing staff rather than hire new workers.

Nonprofits, represented by the Massachusetts Nonprofit Network, say they need the relief because the pandemic-induced recession has dried up donations, costs are increasing for protective equipment and cleaning supplies, and the needs of the people they serve are exponentially larger due to illness and income loss.

Nancy Creed, president of the Springfield Regional Chamber of Commerce, said one-third of the companies her chamber represents say the pandemic may force them out of business. Combined with an upcoming increase in the minimum wage, the implementation of a paid family and medical leave program, and rising health insurance costs, “our business community just simply cannot absorb a projected 60 percent increase in their unemployment insurance premiums without having additional devastating effects on the economy and our workforce,” Creed wrote.

JD Chesloff, executive director of the Massachusetts Business Roundtable, noted that the enhanced ability for workers to work remotely means companies and employees have less incentive to remain in Massachusetts if the costs are too high. He cited one survey of more than 100 employers done by the Massachusetts Competitive Partnership, which found that 28 percent of employers are considering moving or allowing for more work to be done out-of-state, and 38 percent are considering reducing their office footprint in Massachusetts.

A separate survey by Associated Industries of Massachusetts found that 91 percent of members were worried about an increase in unemployment insurance payments. According to the survey, 27 percent said a large increase could spur them to lay off additional workers, 39 percent would consider freezing hiring, and 41 percent would consider reducing employee benefits.

Brooke Thomson, AIM’s executive vice president for government affairs, wrote, “Although it makes sense to statutorily tie these rates to the Fund’s performance in normal times, the employer community could not have foreseen the ripple effects of the COVID-19 outbreak and subsequent economic shutdowns.”