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House Supplemental Budget Includes Unemployment Rate Freeze

Posted on January 12, 2012

The House Ways and Means Committee reported a supplemental budget bill today with a one-year Unemployment Insurance rate freeze that would head off an automatic 31 percent tax increase for employers in 2012.

Unemployment InsuranceThe bill would also eliminate a sunset provision that is due to end the popular Workforce Training Fund Program on December 31.

The full House of Representatives is expected to vote on the $130.7 million supplemental budget proposal next week. It would then move to the state Senate for debate.

The UI rate increase was effective at the beginning of the year, but the Legislature still has time to approve a freeze because employers don’t have to start paying the tax until the end of the first quarter.

Freezing Unemployment Insurance rates at the current Schedule E would avoid an automatic jump in UI costs from $715 per employee to $935 per employee. AIM maintains that the increase is unnecessary since the fund used to pay jobless benefits in Massachusetts posted a balance of nearly $100 million at the beginning of the year. AIM projects that the surplus will grow to between $300 million and $400 million even if rates are frozen.

“The House of Representatives deserves tremendous credit for taking a step that will boost the economy without harming people who need unemployment benefits. At a time when states such as California, Michigan and Rhode Island are paying hundreds of millions of dollars to cover shortfalls in their unemployment systems, Massachusetts has the ability to reinvest the money it would have raised with a tax increase into the private sector for economic growth,” said Richard C. Lord, President and Chief Executive Officer of AIM.

Lord urged policymakers to move forward as well on long-term reform of the UI system.

The Massachusetts jobless fund emerged from the recession in better shape than those in other states because the commonwealth’s knowledge-based economy proved more resilient during the downturn than the nation as a whole. Unemployment in Massachusetts remains at 7 percent, well below the national average of 8.5 percent and one-third lower than the jobless rate in California.

Governor Deval Patrick and Beacon Hill lawmakers have frozen UI rates for three consecutive years. The 2011 freeze averted a $400 million tax increase and limited a $228 per employee increase to an average of $61 per employee.

Pressure to freeze rates in 2012 has built steadily during the past several weeks.

Three key state senators wrote a letter to Senate President Therese Murray January 5 urgingthe branch to freeze the rates at their current level. The letter – signed by Sen. Barry Finegold (D-Andover), Sen. Michael Rodrigues (D-Westport) and Minority Leader Bruce Tarr (R-Gloucester) – argued that freezing unemployment insurance rates would ensure economic stability for small business owners and create a climate for job growth as businesses recover from the recession.

“Our economy cannot endure a sharp increase in the Unemployment Insurance. Allowing rates to increase will stifle job growth in the commonwealth,” Finegold, Rodrigues and Tarr wrote in the letter to Murray.

AIM urges the Senate to approve a rate freeze and Governor Patrick to sign it.