By MARK JEWELL
Associated Press
February 18, 2008 05:25 am BOSTON (AP) — Fears of a recession are heating up the debate as state lawmakers offer to aid Massachusetts businesses that face steep unemployment insurance rates. The Legislature and Gov. Deval Patrick are poised to forego a scheduled annual rate increase in favor of freezing rates at their current level for another year — a move that would prevent businesses from being saddled with $153 million in higher costs to cover the state's unusually generous jobless benefits. Supporters say the relief comes at a time when Massachusetts must do more to ease burdens on businesses amid a national economic downturn that threatens to slide into recession. "Where is the money put to better use? Running around in the economy, or staying parked in the unemployment insurance trust fund?" said John Reagan, executive vice president of government affairs for Associated Industries of Massachusetts, a business group. "It's better in the economy, where it can be used to pay wages and make capital investments." But labor leaders and an economist say the rate freeze couldn't be more ill-timed. Unless a feared recession fails to materialize, job losses will likely grow, leading more workers to draw unemployment benefits and potentially drain the trust fund's current $1.2 billion balance. The balance last fell below zero in 2003 and 2004, following a recession that hit Massachusetts harder than most other states, and has left the state with about 100,000 fewer jobs than it had at its historic employment peak in 2001. Those unemployment trust deficits led the state to borrow from the federal government to pay unemployment claims. The state also doubled unemployment insurance rates to keep the fund in the black. Although the state projects its current $1.2 billion balance will grow to $1.4 billion by the year's end, Robert Haynes, Massachusetts president of the AFL-CIO, fears job losses will accelerate and quickly eat into the reserve. Businesses and legislative leaders "are irresponsible for calling for this rate freeze now, because they are going to have to pay for it later," said Haynes, who compared freezing rates to putting off credit card payments and increasing long-term borrowing costs. "It will create pressure to try to cut unemployment insurance benefits, which is foolhardy." Paul Harrington, an economist with Northeastern University's Center for Labor Market Studies, said the situation could prove to be worse than the aftermath of the recession that began in 2001. The state entered that recession with an unemployment insurance trust fund balance of about $2 billion that was projected to be enough to cover about a year's worth of jobless benefit payouts — greater than the current $1.2 billion balance, which Harrington expects is enough to last five months. The 2001 balance was drained within two years. With the economy in decline again, "This seems like a time to make sure your trust fund is solid, and that means not freezing the tax rates," Harrington said. "We don't want to get back into a position where we will have to raise rates, and be taxing firms in the middle of a recession." Reagan, of Associated Industries of Massachusetts, argues that jobless benefits won't be at risk, even if there is a spike in job cuts. "There are plenty of mechanisms in Massachusetts and federal unemployment law to recapitalize the fund," without incurring higher interest rates that would boost the state's borrowing costs, Reagan said. The rate that businesses pay into the unemployment fund had been scheduled to increase automatically this year under a rate-setting formula intended to build up the fund when the economy is doing well, and guard against a deficit when jobless claims grow. But with lawmakers already worried that the state's businesses face a high tax burden, the House and Senate approved a rate freeze in voice votes on Wednesday. Because of a typographical error in drafting the bill, the measure is expected to be reconsidered sometime this week, but is widely expected to pass again. Democratic Gov. Deval Patrick has indicated he will sign the legislation into law — part of a compromise reached with legislative leaders to win backing for his proposal to close corporate tax provisions that he considers to be loopholes. As part of the back-and-forth, House Speaker Salvatore DiMasi on Tuesday proposed a 26 percent reduction in the state's corporate tax, while endorsing Patrick's loophole plan. The governor backs the unemployment insurance rate freeze "as a first step in a balanced approach toward implementing the governor's proposal to close corporate tax loopholes," Patrick spokesman Kyle Sullivan said Friday. Meanwhile, the rate freeze has focused attention on broader issues about the state's unemployment insurance system, which businesses criticize as overly generous to the unemployed. A report last month by the Pioneer Institute, a conservative-leaning Boston think tank, found Massachusetts led the nation in 2005 in unemployment insurance taxes per employee, at an average $637 per employee per year, or about twice the national average. While 48 other states set a 26-week limit for how long individuals can receive benefits, Massachusetts has the longest allowance, with 30 weeks. The state's unemployment insurance was intended to provide temporary income to people who unexpectedly lose their jobs through no fault of their own. "However, this massive entitlement program has become rife with abuse and unintended consequences," the Pioneer Institute's report concluded.
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