House plan prevents spike in business unemployment costs

The House approved a proposal Tuesday that aims to relieve employers this spring from major unexpected unemployment system costs, while punting the decision on whether to deploy one-time federal funds to address a benefits system that sagged under the weight of pandemic unemployment.

In a move that business groups described as a solid first step, representatives voted 157-0 to shuffle the distribution of unemployment claims costs so that they can be covered over two decades of borrowing and so businesses will not be in line for huge bills in the short term.

After weeks of review, the House on Tuesday also revived plans for an emergency paid leave program that would make participants eligible for up to one week of paid leave if they or a family member needs it to deal with COVID-19 issues, including self-isolation, seeking a diagnosis, or obtaining an immunization. The House sent the bill to the Senate after rejecting amendments to the measure sought by Gov. Charlie Baker.

The legislation (H 3702) addressing a spike in solvency rate assessments on businesses aims to achieve the same goal as an unemployment system stabilization bill Baker signed on April 1, before it became apparent that the original pass failed to fully prevent business cost spikes tied to unprecedented pandemic job losses.

Before the pandemic, employers that laid off more workers typically received higher experience ratings that increased the amount they owe into the state's unemployment system. However, the U.S. Department of Labor told states not to apply those penalties for losses stemming from COVID-19 impacts. Massachusetts, as a result, spread out the costs across all industries through the solvency fund assessment, which in the past had been used to cover benefits that cannot be charged directly to employers, such as dependency allowances and state extended benefits.

"In a typical year, this is a small factor, but as we all know, this year was anything but typical," said Labor and Workforce Development Committee Co-chair Rep. Josh Cutler, who was the only lawmaker to speak about the proposal during Tuesday's session.

Many businesses were blindsided when they opened their first-quarter unemployment contribution bills and found the solvency assessment rate had jumped from 0.58 percent in 2020 to 9.23 percent in 2021, raising costs in many cases by hundreds or thousands of dollars.

Under the legislation approved Tuesday, the state would shift all COVID-related unemployment claims from the solvency fund into a new COVID claims fund and the solvency fund would revert to its original function. Lawmakers already authorized $7 billion in bonding over 20 years as part of the original unemployment stabilization bill Baker signed, so the state would borrow to cover the newly created account.

Employers, who fund the state's jobless aid system, will still be on the hook in the long term, and a COVID-related assessment on businesses will kick into effect for 2021 and 2022. However, lawmakers believe the legislation will correct huge spikes in solvency fund charges that hit businesses in March and April.

For many, the quarterly bills will return to an amount roughly in line with 2020 rates, Cutler said. Some businesses may even owe less than they did last year.

As a result of the change, the solvency assessment rate should fall from 9.23 percent to about 1.1 percent, a figure much closer to its historic levels, Cutler said.

The state Department of Unemployment Assistance would recalculate and resend bills to every employer. The bill would also postpone the due date for first-quarter bills, already delayed by about a month, from June 1 to July 31. Employers who already paid the inflated version of their bills will receive a credit for the difference, Cutler said.

Any new unemployment claims filed after Aug. 1 would be charged to employer accounts, essentially reverting to how the system functioned before the pandemic and the federal guidance.

Business leaders and some lawmakers have pushed to use some of the billions of dollars Massachusetts will receive from the American Rescue Plan to replenish the unemployment insurance trust fund after a historic spike in job losses during last year's mandatory economic shutdowns.

States are empowered to use the relief money to restore unemployment funds under federal guidance, and some have already done so, but -- to the chagrin of several business leaders -- the House opted not to pursue that option in its legislation Tuesday.

"We're not relying on federal money here," Cutler said in an interview. "This is a solution that does not rely on federal funds. We've come up with a solution that works with our own resources and does not rely on federal funding for this. That door is still open, but today this action does not rely on federal money."

Industry groups offered mixed reviews of the bill, praising the relief it will bring in the coming weeks while calling for additional action to soften the burden businesses will need to carry over the next two decades.

"You could characterize this as a short-term solution. Some might characterize it as a long-term solution, but I think those that do that are not looking at the big picture," Retailers Association of Massachusetts President Jon Hurst told the News Service. "If anybody thinks this is the only solution, that would not be acceptable in employers' minds."

Hurst contested Cutler's description that the fix uses "our own resources," arguing that the costs over the next 20 years will still fall to current and future employers "for claims that were not their fault," brought on by government-ordered capacity limits and business closures. He urged Beacon Hill and Capitol Hill leaders to work together and direct taxpayer dollars to offset the costs, whether by using ARPA funding or a new package aimed specifically at unemployment trust funds.

"I'm not saying the entire $4.5 billion ARPA money or the entire trust fund deficit must be paid by state and federal government or socialized, or that employers can't pick up part of the tab, but it would be an absolute failure and we would be an outlier among other states if we expected employers to pay the entire bill for the COVID crisis," Hurst said.

Christopher Carlozzi, state director for the National Federation of Independent Businesses, said the plan unveiled Tuesday is "another step towards providing employers with immediate UI tax relief."

"We are thankful that it will help many employers avoid those astronomically high first quarter bills, however a long term solution will still be necessary," he said in a statement, adding that many job losses were a result of COVID restrictions. "The state must be required to use some of the billions in federal aid to help offset costs for business owners who, under this proposal, are still solely responsible for refilling the unemployment trust. Other states used federal CARES Act and ARPA money to refill depleted unemployment funds, Massachusetts should help struggling businesses by following their example."

Lawmakers, industry heads, labor leaders and other experts are already working on a big-picture analysis of the state's unemployment system. A 21-member commission created under the original stabilization bill convened its first meeting last week, and it is tasked with submitting recommendations by Dec. 15 on how to ensure the unemployment insurance trust fund's permanent solvency.

Cutler said on the House floor that the Senate and the Baker administration collaborated on the legislation approved Tuesday, an approach that could make reaching a final agreement on the matter easier.

Senate President Karen Spilka's office said Monday that she believes the legislation is "a sound proposal."

"Once received from the House, we look forward to reviewing and discussing this proposal with our colleagues and advancing a fix to ensure stability for our employers," a Spilka spokesperson said in a statement.

Baker spokesperson Terry MacCormack said in a statement that the administration "feels strongly that this issue needs to be addressed quickly and is pleased to work with our colleagues in the Legislature to accomplish that goal" and will "review the final legislation that reaches the Governor's desk."

The Senate's next session is Thursday, but it's unclear if the proposal will surface for consideration then.

The House on Tuesday also turned back Baker's calls to exclude municipal employees from an emergency COVID-19 paid leave program and to provide reimbursement for paid leave costs through an employee tax credit. The underlying proposal, paired in the same bill with the unemployment insurance system fixes, requires employers to provide up to one week of emergency paid leave based on the number of hours an employee works, and under a cap that limits total pay to $850 per week.

Employee advocates for more than a year have been calling for a paid leave program, with groups like Raise Up Massachusetts saying too often essential workers were choosing to work so they could make money rather than staying home and seeking COVID-19 testing if they were exhibiting symptoms of the virus.

The Legislature included COVID-19 paid leave protections in the initial unemployment insurance stabilization bill in April, but Baker returned that section with amendments. The House's return to the plan more than a month later comes as COVID-19 cases fall and millions of residents have secured vaccinations against the virus.

"The House stands firm in supporting our municipal workers," Cutler said from the House floor. "Our municipal employees including teachers, DPW workers, police officers, firefighters, health agents, janitors, veterans agents, counseling on aging workers, librarians, and many others have been essential to the state's COVID-19 response and certainly are just as deserving of these benefits."

Employees would be eligible for paid leave if they need to self-isolate, seek a medical diagnosis, obtain an immunization, comply with a quarantine order or determination by a local, state or federal public official, if they are unable to telework because of a COVID-19 diagnosis, or if the employee needs to care for a family member who needs to self-isolate, needs a medical diagnosis, or is subject to a quarantine.

The Baker administration has defended its proposed exclusion of municipal workers from the program, arguing that municipal workers have strong leave protections in place already and that many municipalities can access federal funds to implement their own leave programs that could align with state and federal leave guarantees.

Baker also proposed to convert the program funding to a $40 per employee tax credit for all companies unable to access federal credits, regardless of whether the employee uses the leave benefit. The governor said this would not add to the cost of the program, but would prevent it from abruptly ending when the $75 million proposed for employer reimbursements runs out.