MONTPELIER — Legislative leaders say Vermont businesses are expected to see a $28 million decrease in expenses this year from lower workers’ compensat ion and unemployment insurance costs.
Senate President Pro Tem Tim Ashe, D-Chittenden, and House Speaker Mitzi Johnson, D-South Hero, said projections from the Vermont Department of Labor indicate businesses will see the significant decrease in their costs.
The reprieve in unemployment insurance costs comes as the state recovers from the Great Recession when the number of unemployed Vermonters surged.
“The really good news for business out there is that between 2016 and 2017, between workers’ comp and unemployment insurance, businesses within the state of Vermont will see a $28 million reduction in expenses, which is, I think, pretty exciting and good news for businesses,” Johnson said.
The speaker said projections show a $ 1 2 . 6 million decrease in unemployment insurance payments this year, another $13.4 million next year and an additional $18 million the following year.
“Just with unemployment insurance payments that businesses make, over five years there will be a $76 million reduction in what they have to pay in because we’ve taken the right steps,” Johnson said. “These were things put in motion a long time ago, but this is where the good news comes home to roost.”
Bill Driscoll, vice president of Associated Industries of Vermont, said the state’s unemployment insurance system “virtually collapsed” because of the recession. He said “very Draconian” changes made to the system in 2010 to respond to the growing number of people unemployed in the state meant significantly higher costs to employers.
The unemployment insurance system includes five different tax levels that employers can face, and the recession sent the rates to their highest possible levels to help keep the state’s unemployment insurance trust fund solvent, Driscoll said.
The recession also led to doubling the wage base that employers must pay the tax on to help boost the fund.
“Coming out of the crisis and the reforms in 2010, employers were facing sort of a double whammy,” Driscoll said.
The projections indicate the state will drop down one tax level in July, easing costs on employers, and is projected to drop another level in July 2018 if economic conditions continue to improve. Dropping down the additional level in 2018 would also begin to lower the wage base employers are taxed on, which was raised in 2010.
Following the recession, Driscoll said the unemployment insurance burden on Vermont employers “was more than twice the average around the country.” The reduction in costs touted by legislative leaders comes after years of “extremely high taxes” on employers, he said.
“We certainly wouldn’t turnitaway…butit doesn’t mean that we’re not under pressure anymore,” Driscoll said.
Ashe said the increased costs on employers were part of a compromise between the business community and labor interests in 2010. Businesses saw the wage base they paid taxes on grow from about $8,000 to more than $17,000.
The $ 8,000 base was “fixed in place for years and years and years and several governors didn’t propose to raise it,” causing the rather steep increase, he said.
Now that the trust fund is healthier, employers will see their costs decrease, Ashe said.
“It’s certainly no silver bullet, but it is a pretty significant overall boost in the sense that it’s returning tens of millions of dollars to reinvest either in their people or their facilities,” he said. “No one employer is going to be receiving millions of dollars, but many employers will be receiving thousands of dollars on their bottom line. I think it’s a nice little booster shot.”
Meanwhile, workers compensation rates are also expected to decrease, resulting in another $15.5 million in savings, according to data provided to Ashe and Johnson by Mike Pieciak, commissioner of the Department of Financial Regulation.
Ashe said some companies may have “bad experience ratings” that will not result in savings, but overall, Vermont companies will share from a decrease in overall rates.
“It doesn’t mean everyone is seeing a decrease, but system-wide, a $15.5 million decrease,” he said.
Ashe said the “ lion’s share” of the rate reduction is the result of good workplace habits in Vermont and the implementation of harm-reduction policies. Greater health insurance coverage among Vermonters is also a likely reason for the overall decrease, he said.
“If you’re more likely to be seeing your primary care doctor once a year and accessing care in a more timely manner, intuitively, you would think that issues like back injuries might be less likely to occur as people manage their weight and health,” he said.
Vermont, Ashe acknowledged, has historically had higher workers’ compensation costs for employers than surrounding states, but said the rate reduction this year is “definitely good news.”
Driscoll agreed that Vermont “tends to have much higher” workers compensation rates. He said that is the result of a benefit structure that is more costly than other states.
“The rates are higher because the rules are more accommodating to more expensive and longer-lasting claims,” he said.
Johnson said lawmakers are happy that employers will see a reduction in costs.
“We’re not trying to dip our hands into this at all,” she said. “These are reductions in expenses the businesses have earned.”