
April 21



When Bennett Pudlin looks at the federal unemployment compensation program, he sees a system in trouble. Pudlin is executive director of the state Employment Security division, which administers the unemployment system for the Connecticut Department of Labor.

The percent of jobless people eligible for unemployment has been shrinking over the past decade, as has the system's ability to replace lost wages, Pudlin says. The recession has meant close to 40 percent of Connecticut people eligible for unemployment exhaust their 26 weeks of payments before finding work.

Congress passed a measure sponsored by Democrats last week to extend unemployment benefits for people who have been out of work for more than half a year. President Bush reiterated Friday his intention to veto the bill, saying he would sign a less costly and less generous Republican alternative.

Making matters worse in Connecticut, dollars paid out by the system have greatly outpaced money coming in from employer taxes over the past two years. That left the Connecticut fund insolvent as of January and forced the state to borrow millions from the federal account set up to help states through tough times.

At the end of August, the state had paid back some of the money through a special assessment on employers, but Connecticut still had about $225 million in outstanding loans. The loans -- and the interest -- are expected to keep piling up.

Pudlin, a Yale Law School graduate and former legal aid attorney, says the system needs a dramatic overhaul on both the national and state levels. Last week in an interview, he talked about how the program is working and what can be done so it can better meet the needs of the growing number of Connecticut residents who can't find work.

What is your assessment of the health of the unemployment compensation system today? The original dual purposes of the unemployment compensation system were: one, to provide temporary income support for workers who were unemployed through no fault of their own; and, second, to have a counter-cyclical effect on local economies by pumping unemployment dollars back into circulation to dampen the effects of local recessions.

To do that, you've got to pay a sufficient number of unemployed workers and you've got to give them a sufficient number of dollars. We are no longer doing either of those things.

Are Connecticut and other Northeastern states in particularly bad shape? It's important for people to understand how desperate the situation is in Connecticut. We have been blessed with a relatively low unemployment rate -- we can talk about whether it is artificially low -- but we have not been hit as hard as some of our sister states. ...

But the figures for total unemployment don't tell the whole story. A much more revealing number is the percentage of claimants who collect their full 26 weeks of unemployment benefits, exhaust their entitlement, then don't find work. ...

By the end of the year, we expect it to be 40 percent ... our highest rate in 50 years. This is staggering, considering that the unemployment rate could get much worse. By the end of this year, we could have 75,000 to 80,000 people exhausting benefits without going back to work.

Those kinds of numbers mean big payouts. What do they mean in terms of long-term borrowing from the federal fund to keep making payments in Connecticut? As of Aug. 30, we had borrowed approximately $230 million -- net -- on which Connecticut employers pay interest. We made an interest payment of $8 million on Sept 30. ... That's just interest. The principal is sitting there, and it is going to grow because we have a tax structure which is totally inadequate to fund the system. ...

Even without the recession we would have gone bust, because the wage base [on which taxes are computed] was frozen and the payouts kept rising. This is not a crisis brought on by the recession, and when the recession is over we won't work our way out of it. ... Our projections are that by the end of 1992, we will borrow over $500 million and that interest payments would equal $37 million.

What kind of changes are needed to bring the state system to solvency? The only way I can see to rectify this is a total reform of the system. In testimony before the labor committee last session, Larry Fox [deputy state labor commissioner] and I set forth our view of the problem and the need for radical restructuring to cure it.

I think that because of the serious problems with the state budget and the uniformly perceived need to provide some relief to business in taxes, the legislature was unwilling to address the issue. Next year, it has to be on the agenda because the situation just keeps deteriorating.

What can be done to extend benefits for people who have exhausted theirs without finding new jobs? What do you think of the efforts in Washington to provide help? There is an extended-benefits program on the books, but in the early 1980s, Congress changed the [unemployment level] triggers for that program. . . . [Under the old formula] we would have triggered on in April, but only about nine or 10 states ever triggered on in this recession; under the old formula, it would have been more than double that.

Congress has responded to the great need, recognizing that the current extended-benefit program doesn't work, and has enacted for the second time a fully federally funded supplemental emergency benefits program. It passed both houses by overwhelming margins, and it has gone to the president who has clearly indicated his

intention to veto it.

Why should President Bush approve the measure? The bill passed by the Congress would take money from a dedicated trust fund that has grown during the recession to over $8 billion. It was created exactly for this purpose. ... You can't spend it on anything else.

Because the fund is put in the unified federal budget, it technically makes the deficit look larger when you spend down those monies. In fact, those monies don't belong to the general fund. ... There is ample money to take care of the need, and it is not being spent.

What is the alternative if Bush follows through on his veto threat? There was a plan offered by Sen. [Robert] Dole [R-Kan.] as an amendment but it was resoundingly defeated. ... I presume the Dole amendment would form the basis for some sort of compromise legislation. That bill purports to raise the money needed by selling unused federal airwave rights, or something like that. But more importantly, it costs less than half as much because it is much less generous. It offers many fewer weeks of help.

Under the provisions of the approved bill, Connecticut just met the requirement for helping people who have already exhausted their benefits. The criteria is the state unemployment rate for the past six months. If the state rate truly is artificially low, as some suggest, isn't this a case where the theoretical debate has real implications? We just squeaked by, but clearly there is some cause for concern. We have been working with the [federal] Bureau of Labor Statistics to try to get a handle on what is going on. Although we publish the Connecticut unemployment rate, we are required to use a federal model. ...

It is just an estimate. They say their model is accurate on an annual basis, but the model seems to smooth out the highs and the lows. If you look at Massachusetts (which, because of its larger size, uses only a statistical survey to come up with its number), they have been having these spikes up and down. That has been driving them crazy.

What factors could be throwing off the Connecticut number? Other than a sample error, we have identified several areas of possible concern. One is this whole notion of severance pay. This recession is hitting white-collar workers harder than previous ones, and we are seeing lots of severance packages, some of them running for months, a year or more. Typically, workers aren't eligible for unemployment benefits while they are receiving severance.

People also may be seeing prospects for re-employment at their old wages are dim, so they are trying to make it as consultants. ... The number of new people coming in -- new entrants -- may be off beause so many are discouraged.

There is some belief there is a lot of "out-migration" -- people who have exhausted their benefits, have mobility and skills so they leave. But it is almost impossible to narrow it down to any one factor and isolate it.

What are the dangers of those people leaving state? One would expect that those people leaving are the ones with the most marketable skills. And on the other side of this recession, the demographics could still produce a significant labor shortage, and we cannot afford to lose our skilled work force. That is our only natural resource in Connecticut.

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