Vermont to borrow $58 million to pay unemployment benefits

The Vermont Department of Labor announced today that it has requested a $58 million advance on a line of credit from the US Treasury to pay unemployment benefits through the end of March 2010. Vermont is currently paying out more than $4 million a week in unemployment benefits and expects to deplete its unemployment trust fund in early February. The line of credit will enable the department to continue to pay benefits to Vermont’s unemployed workers.
Vermont Commissioner of Labor Patricia Moulton Powden said, “It’s absolutely necessary that we borrow this money to continue to pay benefits even though it will burden Vermont employers in the future. We knew this was coming and have been able to delay borrowing until now.” The loans will be repaid by Vermont employers through annual increases in the federal unemployment tax (FUTA). The federal tax is expected to increase from 0.08 percent to 1.1 percent in 2012 and by an additional 0.03 percent each year until the loans are repaid.
The unemployment insurance program is governed by both state and federal law. One feature of the federal law allows states to borrow funds once the state’s trust fund is empty. All requests to borrow must be for three month intervals. The department will request successive three month lines of credit until the program is able to meet its obligations without federal assistance.
Vermont joins 27 other states currently borrowing from the US Treasury to pay benefits. The US Department of Labor expects a total of 40 states to borrow $90 billion before the current recession ends. Without legislative changes to Vermont’s program, it will need to borrow $284 million by 2014. The Douglas Administration has laid out a proposal to get the fund back in the black. The legislature took small steps to help during the special session in June but a full fix to the unemployment trust fund deficit has not been approved and will be debated again during this legislative session. Failure to act last year has resulted in an additional approximately $30 million that will need to be borrowed from the federal government. Projections from the Department indicate Vermont may need to borrow up to $100 million dollars to pay unemployment benefits for calendar year 2010.
In 2009, the Department of Labor paid out $170 million in state benefits and $55 million in federally funded emergency and extended benefits. State benefits are projected to total $183 million in 2010.
Vermont employers will also be paying increased taxes into the unemployment trust fund. Existing law requires a shift to higher state tax rates on July 1, 2010. In addition, the Legislature increased the wages the employer pays the tax on from $8000 to $10,000 beginning January 1 this year. Further increases in taxes and some changes in benefit payments will be necessary to make Vermont’s fund solvent again and return to an adequate balance to sustain any future recessions.
Source: Vermont Department of Labor. 1.21.2010