1 March 17, 2021 vs/mi FINANCE, REVENUE 9:00 A.M. AND BONDING COMMITTEE CHAIRPERSONS: Senator John Fonfara, Representative Sean Scanlon SENATORS: Cabrera, Cassano, Cohen, Formica, Hwang, Maroney, Martin, Moore, Needleman, Slap, Witkos REPRESENTATIVES: Barry, Butler, Carney, Chafee, Cheeseman, Concepcion, Devlin, Doucette, Elliott, Farrar, Hall, Hampton, Hennessy, Kavros DeGraw, Klarides-Ditria, Lemar, Mastrofrancesco, Meskers, Miller, Mushinsky, Nuccio, Paolillo, Perillo, Perone, Phipps, Piscopo, Polletta, Sanchez, Santiago, Stafstrom, Wood K., Wood T., Yaccarino, Ziogas, Zullo, Zupkus REP. SCANLON (98TH): Well, good morning, everybody, and happy St. Patrick's day. Welcome you to the March 17, 2021 Finance, Revenue and Bonding Public Hearing. I am Sean Scanlon, House Chair of the Committee. I don't know if my Co-Chair is on yet, but any remarks from the Ranking Members before we get started? REP. CHEESEMAN (37TH): No. Happy St. Patrick's day to everyone. I'm good to go, thank you, Chairman Scanlon. SENATOR MARTIN (31ST): Happy St. Patrick's day everybody, and I'm also ready to go, thank you. REP. SCANLON (98TH): All right. First up this morning, we will have a presentation from staff from 2 March 17, 2021 vs/mi FINANCE, REVENUE 9:00 A.M. AND BONDING COMMITTEE the administration on the unemployment Bill that we are hearing today, and so I would invite Jonny Dach and his colleagues to begin their presentation. JONNY DACH: Thank you very much, Mr. Chair. Good morning to the Committee, thank you very much for your long day on Monday, what I hope will be a shorter day today, and for inviting me, as well as Deputy Commissioner Daryle Dudzinski, from the Labor Department, and Commissioner David Lehman from DECD, as well as some very hardworking members of the DOL staff to come in and talk to you today about 6633. A proposal that we think can bring some much needed stability to the unemployment insurance trust fund in Connecticut and benefit employers, workers, and the economy as a whole. With the Chair's permission, I'm going to share my screen and take us through a quick slide presentation on that Bill. Before I do, I want to say two things. First, that every number you're about to see is based on an extraordinary amount of research from the R&D overtaxed team at DOL, who has built a model using all 100,000 employers in their database to look at what the impacts of this Bill might be. And, second, that although I'm going to run through a lot of numbers, they are, of course, subject to further discussion with the Committee with other stakeholders, who are interested in this Bill and are intended as the jumping off point for discussion rather than anything final. I also want to say for the record, that I do have a green tie here, but the Committee was too efficient in its opening remarks for me to have time to change out from the red one to the green one after I was called out for my poor showing on St Patrick's day. So I apologize to the viewing public and the Committee Members for that. 3 March 17, 2021 vs/mi FINANCE, REVENUE 9:00 A.M. AND BONDING COMMITTEE I also think David Lehman was completing a quick piece of family business this morning, and should be joining us in the waiting room shortly, so if the team could keep an eye out for him. Alright. So, before I jump into it, to a summary of the proposal itself, I want to put some quick facts about unemployment insurance on the table. First they're not small potatoes, unemployment insurance taxes nationally raised about $45 billion dollars, the equivalent to 1% to federal revenues. And here in Connecticut and on an annual basis, they raise about $700 million dollars, which would be more than 3% of general funds if we raised and appropriated them. From an employer's perspective, they tend to be between .5 and 1% of payroll, which is significant. But less significant than other payroll taxes, like the FICA social security and Medicare taxes that come in around 7.65%. I talked about UI taxes, but there are actually three taxes. Two on the stateside; the core product is an experience rating, tax that ranges per employer from .5% to 5.4% based on how often their employees draw benefits. Second, at the state level, there's a solvency tax adjustment that can go as high as 1.4% although it should be in a good year at zero. It's been stuck at that 1.4% statutory maximum in Connecticut for as long as we can remember. And finally there's a federal portion usually .6% that is collected by the feds remitted for the administration of the fund. Usually quite small dollar, but one of the ways that the federal government recruits any loans they provide to the states. Critically, all of those taxes are collected against a taxable wage base. So the first several thousand dollars that an employer pays to an employee in each calendar year; $15,000 on the stateside, $7,000 on the federal side. 4 March 17, 2021 vs/mi FINANCE, REVENUE 9:00 A.M. AND BONDING COMMITTEE Also critically, the program has to be funded, there's no such thing as a free lunch in UI. If you pay out of dollar in benefit, it means you're going to collect that dollar at some point from the employers and economy of Connecticut. As currently structured, our UI system has, as I see it, three major problems on the revenue collection side. First and most obviously, the fund is broke. Second, and one of the reasons it's broke, is that the experience rating is inadequate to the job against the current taxable wage base. And finally, the rates tend to be regressive in a way that overly burdens small businesses and working families. The good news is that even though there are three problems, we think 6633 has put forward what's really one solution, which is to broaden the taxable wage base while simultaneously lowering the rates, and also to enact some benefit reforms that have been endorsed previously by the Employment Security and Advisory Board at the US Department of Labor that has been chartered by the legislature. Added in for good measure in 6633 are some recession recovery measures inspired by various tools that the state and federal governments brought to bear during the pandemic that will help the economy get back full employment faster. So with that overview, I'm gonna -- I'm gonna run quickly through a little more information about the taxable wages base. Connecticut's taxable wage base has stagnated, it's been flat for 22 years. That means it's declined in real dollars by almost a third over that time, and it's been flatlined for the second longest period in the program history. The program history actually is interesting because, and I didn't know this until I started working on this project, social security and unemployment insurance we're actually both created in the Social Security Act of 1935. They were core to the 5 March 17, 2021 vs/mi FINANCE, REVENUE 9:00 A.M. AND BONDING COMMITTEE recession recovery platform put forward by FDR and the new dealers. And at the beginning, social security had a $3,000 dollar taxable wages base, but UI was unlimited. Every dollar that an employer paid was subject to the UI taxes. The US Congress came in a couple years later and equalize them at $3,000 dollars of taxable wages base, which still covered about 95% of wages paid in the American economy. And they puttered along together at $3,000 dollars for a while before social security's was index to inflation. It reached $142,000 last year, while the UI taxable wages base was left post by the federal government and by us states to stagnate. The social security taxable wages base, which goes up every year, actually went up by more on January 1st, stroke of midnight this year, than the social - - than the UI wage base has gone up on the federal level in its entire, nearly century long history. And what that means is that, instead of having 100 or 95% of wages subject to this tax, only 23% of wages in Connecticut are. It's a record low. And the next two slides are just some quick graphical representations here of the rise over time of the social security wage base compared to the stagnant UI tax wage base, and second of the declining percentage of total wages, subject to the Connecticut suited tax over time. All of these slides are included in our testimony and available from the Committee staffer up on the website. Finally, to lay the table, just a quick look at how Connecticut's UI taxable wage base compares to other states. You can see we're pretty much in the middle at $15,000 dollars, that's the median. The average is closer to 20. A couple other takeaways from this slide. First, there's an asterisk next to the state, as there are 6 March 17, 2021 vs/mi FINANCE, REVENUE 9:00 A.M. AND BONDING COMMITTEE for 22 states. That means their UI taxable wage base went up last year. In most cases, because it's indexed to some measure of inflation. Second, higher taxable wage basis or not a partisan idea 'cause I really think, and we'll see as we go through this, they're a win-win for employers, for workers, and for the economy.