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Updated: May 7, 2020

CT awarded federal loan up to $1.1B to pay unemployment benefits; state has not tapped funds

Photo | CT Mirror DOL Deputy Commissioner Daryle Dudzinski, left, and Commissioner Kurt Westby.
By Joe Cooper

This story has been updated to include comment from the state Department of Labor

Connecticut is one of several states approved for a federal loan to pay rising unemployment claims amid the COVID-19 pandemic, state labor officials confirmed Thursday, raising concerns from business groups about the potential added cost to employers.

The U.S. government has approved a loan of up to $1.1 billion for Connecticut through the end of June to keep its unemployment-insurance fund steady, a spokesperson for the state Department of Labor (DOL) said Thursday afternoon. 

In particular, DOL made borrowing requests of $180 million, $215 million and $750 million for the months of April, May and June, respectively, it said. The agency, however, will not need to use the requested April funds because its unemployment fund still stands at $560 million.

DOL previously told HBJ the state would need to borrow money from the federal government if the balance fell to about $115 million. It has not yet borrowed any of the approved funds.

More than 472,000 Connecticut workers have filed for unemployment since mid-March due to COVID-19-related business shutdowns and other economic hardships caused by the pandemic. DOL said it's provided $336 million in unemployment benefits after processing 418,000 of the 472,000 claims it has received since March 13.

The unemployment trust fund pays for jobless benefits and gets its money from taxes employers remit to the state each quarter.

The National Federation of Independent Business (NFIB) on Wednesday questioned the state's plan to pay back the federal loan because that likely means higher taxes for Connecticut businesses.

“When so many small businesses in the state are shut down through no fault of their own and their cash reserves have run dry, it would be cruel to pile added costs on these business owners as they struggle to come back,” said Andrew Markowski, state director of the NFIB in Connecticut. “If the goal is to restore the Connecticut economy and reduce unemployment, it doesn’t make sense to make it harder for small businesses financially.”   

After the last recession (Dec. 2007 to June 2009), Connecticut’s unemployment rate rose to a high of 9.3% in late 2010. The state subsequently borrowed about $1.2 billion from the federal government to shore up its unemployment trust fund.

Between 2011 and 2015, employers in-state saw their federal per-employee unemployment tax jump from $42 to $189 per employee.

“Raising costs to make up for an unemployment loan wasn’t a good policy after the Great Recession, and it would be a bad decision now, harming small businesses during the pandemic recovery,” Markowski added.

At least nine states as of Monday requested to borrow a combined $38 billion from the Federal Unemployment Account to cover a major spike in unemployment claims in the coming months, ABC reported.

California and Illinois were reportedly approved to borrow up to $10 billion and $12.6 billion, respectively, from the federal government through the end of July. But California is the only state to have accessed the funds, borrowing $348 million thus far, the Wall Street Journal reported.

The requests come as national economists have predicted that most states are likely to exhaust their unemployment trust funds and borrow money from the federal government.

Meantime, for the first time last week, self-employed workers in Connecticut's "gig" economy were able to receive unemployment benefits from the federal government, but not the state. DOL says it has received 38,000 applications from these workers, who traditionally have not qualified for state unemployment benefits.

Since mid-March, DOL says it’s issued more than 1.86 million payments amounting to over $1.05 billion, which includes approximately $443 million in state benefits and $607 million in federal benefits.

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