State Government

Spotlight: pandemic, fraud caused $300 mil plunge in unemployment fund

by Jack Borbee

Heading into 2020, Vermont had one of the most solvent unemployment insurance (UI) trust funds in the country. Indeed, Vermont’s unemployment rate was the lowest in the nation, and there were far more people paying into the fund drawing down from it. However, that all changed with the economic crisis caused by the COVID-19 pandemic. Now, policymakers are scrambling to determine how to get out of their current predicament.

A Rosy Pre-Pandemic Picture – For Some

Prior to COVID-19, Vermont’s unemployment system seemed perfectly fine to the outside observer. Few individuals were claiming benefits; the trust fund was healthy and robust; and the state scored incredibly high on solvency metrics. Vermont’s UI system was–and is–incredibly generous to claimants. In the last quarter of 2019, the average weekly unemployment benefit in Vermont was above the national average, while the taxable wage base was more than double the federal standard.

But not everything was perfect. Indeed, there was an obvious reason why Vermont’s UI system was so healthy: it was being propped-up by high-payments from Vermont businesses, who faced one of the highest UI tax rates in the entire nation.

Under the first few years of the Scott Administration, average UI taxes went down for two consecutive years–thanks to the health of the trust fund. The taxable wage base followed suit. But firms were still forced to fork over far more than their neighboring-state counterparts, contributing to the high cost of doing business in Vermont.

Still, even Vermont’s high trust fund balance couldn’t have prepared it for what was to come.

Unprecedented Unemployment

In April, Vermont’s 3.1 percent unemployment rate increased by roughly five-fold to 15.6 percent. Vermont was no more immune from high unemployment, shuttered businesses, and pandemic lockdowns than its neighboring states.

Unfortunately, this has had severe implications for Vermont’s UI trust fund. In the roughly year-long period since the COVID-19 pandemic hit, Vermont’s UI trust fund has plummeted by about $300 million–or nearly 60 percent–according to the U.S. Treasury.

While massive increases in unemployment claims were part of the picture, so was fraud. The Vermont Department of Labor (VTDOL) warned of spikes in fraud, as bad actors sought to exploit the system to take advantage of the $600-per-week checks the federal government was spending on claimants.

Indeed, according to U.S. Department of Labor (USDOL) data from prior to the pandemic, 4.33 percent of Vermont’s UI payments–totalling in the millions–were improper, or down-right fraudulent. There’s no telling how much fraud has increased since the start of the pandemic. VTDOL told Vermont Daily that a fraud task force has been established to address this issue.

Perhaps equally concerning is how much fraud is recovered – or left unrecovered. According to USDOL data, only about one in every three dollars that the state of Vermont overpaid was recovered between 2017 and 2019. Indeed, the state of Vermont actually waives overpayments if it was due to an error that is not the fault of the claimant. According to Vermont’s UI handbook, “In all cases of non-fraudulent overpayments, the Department may either order or waive the repayment of the overpaid benefits.”

Put simply, if you were eligible for a $500 unemployment check – but the state agency made a mistake and deposited $1,500 in your account by mistake – the state might not bother to try to recover the funds. And, according to USDOL, as much as one third of all UI overpayments in Vermont are due to agency or employer error – suggesting VTDOL could be waiving the recovery of massive amounts of overpayments.

And yet again, in 2020, Vermont found itself on top; not for a good metric, but for having the highest UI taxes in the country–surpassing every other state’s average employer UI contributions as a percent of total wages.

In just one year, claimants skyrocketed and the trust fund balance fell, all while taxes remain incredibly high. Now, lawmakers are trying to pick up the pieces.

Conflicting Priorities

VTDOL noted to the Vermont Daily that Governor Phil Scott’s goals are to “limit the unemployment insurance tax schedule and temporarily freeze the taxable wage base” in order to provide some much-needed relief to employers. And it seems that a senate bill, S.10, does exactly that.

But coupled with this tax freeze in S.10 is a massive increase in benefits and a future tax hike that will cost taxpayers millions. By kicking the can down the road, the Vermont Legislature is opting to freeze taxes this year–but raise them by even more in years to come. This legislation has passed out of the Senate Committee on Economic Development by a 4-1 vote. Committee Chair Senator Michael Sirotkin (D-Chittenden County) did not respond to requests to comment.

Now, the full Senate will debate this issue before it goes to the House. Lawmakers will have to choose between competing priorities. Will they prefer a solvent trust fund, or support for businesses and claimants? Will they opt to continue on the path towards massive tax increases, or scale back proposed benefit increases? Whatever their decision, it will have lasting implications for not only the state of unemployment policy in Vermont, but for countless workers and small businesses alike.

2 replies »

  1. This is not surprising at all. The company i work for has done job interviews with subjects, and offered them jobs . Just to have them turned down for “ oh my unemployment has been extended and with the COVID bill i will make more money than if i work”.. How is any business suppose to stay afloat when government is paying people more to stay home. They are causing more problems than they are fixing.

  2. How forward thinking and awesome this legislation is! First, boost the unemployment benefit so to lower the incentive to find work. Next, penalize VT business (All of them) by increasing the Unemployment tax rate, whether the buisiness was forced to lay off or not.
    For those legislators that have no clue about how business works, Sit Down, Close your mouth and listen to legislators that have.

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