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Romney eyes benefit cuts for jobless

Economy drains unemployment insurance fund

With the state's unemployment insurance fund nearly drained by the sluggish economy, Governor Mitt Romney wants to cut the length of time that out-of-work employees can receive state unemployment benefits, and force businesses to pay more into the fund.

Massachusetts is the only state in the nation to offer unemployment insurance for 30 weeks, and Romney wants to bring that period down to 26 weeks -- the standard in the other 49 states -- to save $90 million a year. He also would increase the unemployment tax that businesses pay, so that a typical company with 50 employees would pay about $6,000 more a year, a 34 percent increase.

Romney says the state Legislature must act before Jan. 1, or businesses would be hit with an even higher tax -- an increase of as much as 159 percent in some cases. For a company with a payroll of 50, the tax could increase by $11,000 or more.

But his proposals, part of an overhaul to the state's unemployment insurance system that Romney aides are looking to finalize with legislative leaders, set up a conflict with the state's labor unions and some Democrats in the Legislature. They're arguing that, with jobs still hard to find, now is the worst time to shorten unemployment benefits.

Romney is seeking a change in the benefits now because the state's unemployment insurance trust fund, which stood at more than $2 billion in 2000, is expected to be down to as little as $50 million by the end of the year. The need for benefits for the state's jobless -- the unemployment rate stood at 5.4 percent in July, and the state has lost more than 160,000 jobs since late 2000 -- is draining the fund at the rate of about $100 million a month.

Under current law, the fund's low balance would trigger an enormous increase next year in the unemployment insurance tax paid by businesses. Companies would see their premiums rise by 75 percent on average, according to the Romney administration, and businesses with the best employment records would be hit with far larger increases, even though they're not responsible for the additional drain on the fund.

"It would be very bad for businesses," said John Regan, vice president of legislative policy for Associated Industries of Massachusetts, a business lobbying group. "It's part of the overhead, and any time you drive up the overhead, it means you're not investing in equipment, you're not investing in people."

Romney's bill would increase business contributions, but avoid the larger increase by reducing benefits to workers. Robert Pozen, Romney's secretary for economic development, said he is looking for employers to cover roughly two-thirds of the expected shortfall, with savings from benefit reductions accounting for the remaining third.

"There has to be some sharing of the burden," Pozen said. "The employers are going to take the majority share, but we have to address structural reforms and benefit reforms."

While Romney filed a bill with proposed changes in April, Pozen said that approach is outdated because the unemployment fund is being depleted more rapidly than the administration had estimated. He said that he is open to negotiating all details of the original proposal with the Legislature, as well as other ideas that affect revenue and benefits.

Senator John A. Hart Jr., the cochairman of the Legislature's Commerce and Labor Committee, said he is hesitant to sign off on cuts, given the economy. "For us to be in the business of cutting benefits when more and more people are being laid off, it just doesn't make sense to me," said Hart, a South Boston Democrat.

Hart said he'd like to address the problems with the unemployment insurance fund by forcing companies with high employee turnover to contribute more, since their layoffs are more of a drain on the fund. But he said he's wary about doing anything that would hurt businesses as they take tentative steps toward recovery.

Unemployment insurance works this way: When people lose their jobs, they can apply to the state for a portion of their previous income. Currently, Massachusetts residents are eligible for up to 30 weeks' pay at half of their average weekly salary, up to a maximum of $507 per week, plus an extra $25 per dependent to household heads.

The federal government has, in times of economic troubles, extended the benefits to a longer period of time. Currently, the benefit is guaranteed for up to 39 weeks, but that would expire unless Congress continues it.

About 100,000 people in the state are receiving jobless benefits, according to the state's Division of Employment and Training.

Romney also wants to give unemployment benefits only to workers who were employed for 20 weeks, up from the current 15, so that fewer workers who only find jobs during particular seasons and aren't seeking year-round work are covered. That would save Massachusetts about $30 million annually.

Pozen cited US Department of Labor data that show that even if Massachusetts were to enact both of Romney's suggested benefit cuts -- and take another step that would limit benefits to some workers -- the Bay State's average unemployment benefits would remain the most generous in the nation. Also, because the federal government has guaranteed 39 weeks of unemployment to all residents through the end of this year, no one would be cut off at 26 weeks in the immediate future, Pozen said.

But there's no guarantee that Congress will offer the 13 additional weeks of unemployment beyond the end of this year. If Romney's plan is pursued, the state's workers would be left with a less extensive safety net, said state Senator Marc R. Pacheco, a Taunton Democrat.

Rick Klein can be reached at rklein@globe.com

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