Governor Peter Shumlin wants Vermonters to know the state is closing the book on a big federal debt. "We're going to push send today on paying down the final payment for the money we borrowed during the great recession for the Unemployment Trust Fund," Shumlin said Monday.
Three years ago Shumlin was in the Senate and helped broker a deal where the state borrowed about $78 million dollars from the federal government to keep the Unemployment Insurance Trust Fund afloat. During the economic downturn so many workers lost their jobs that the fund ran out of money. The state did not repay the loan on time, so automatic federal penalties kicked in that fell directly on employers, who had to pay $21 per employee to the federal government -- a total of about $6 million. "Employers gave by having to pay higher rates. Employees gave up some benefits and that's what allowed us to pay off the debt two years earlier than we thought we might," Shumlin said.
Now that the loan is paid off, officials say the next step is building a reserve in the Unemployment Insurance Trust Fund to avoid this from happening again. The goal -- $160 million. But right now the state has less then a third saved -- about $50 million. "That's not nearly enough to consider ourselves solvent and likely we'll see a dip in the fund as we get into the first quarter of 2014," said Tracy Phillips, Director of Vermont's Unemployment Insurance and Wages Division.
The state might not reach that goal of $160 million for another six years. At that point, if there is enough in the reserve, state taxes on employers might drop and benefits increase for laid off workers. But the Governor would not provide specifics. "Let's get that fund built up, get it back financially stable and then we can talk more about the future," Shumlin said.
"It's fortunate that it turned out we only had to experience that tax penalty for one year," said William Driscoll, with Associated Industries of Vermont. Driscoll says if the state hadn't paid back the debt, the federal penalty on employers would have doubled every year. He says paying back the money is a good start, but the bigger problem looming is making sure it doesn't happen again. "Hopefully in a few years, we'll reach a point where it will be unlikely that a future recession or other economic crisis will bring us down to where we were a few years ago," he said.
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