Irene-Hit Businesses Face Insurance Price Spike
Montpelier — Some Vermont businesses shut down for months by Hurricane Irene are now being hit by new woes: sharply higher contributions to the state’s unemployment insurance trust fund.
In one example, the Woodstock Farmers Market, an upscale private market for produce and gourmet food, laid off its 45 employees after the storm while it closed 11 weeks for extensive repairs. But during that period, the state counted those employees as workers who had been fired, which lowered the company’s unemployment insurance rating.
That unemployment insurance rating reflects an employer’s history of firing and hiring employees, and employers with higher employee turnovers contribute more to the state’s unemployment insurance trust fund, which then doles out benefits to the unemployed.
For the people running the Woodstock Farmers Market, that amounted to an extra $40,000 annually in contributions to the fund, even though they couldn’t prevent the disaster or the temporary layoff of their employees. That $40,000 represents about a year’s worth of profit, according to the firm’s chief financial officer, Steve Moyer.
“Why should you be penalized in your U.I. rating for an act of God?” said Patrick Crowl, the market’s owner. “The cash flow after a disaster is your lifeblood. You’re paying all your money back to the state because of an act of God. It doesn’t make sense.”
“It ought to be: Look, you’re a hardworking business. You’ve been paying unemployment for years and years. You have an act of God. You should go back to what your rating rightfully is,” continued Crowl, who also has a $100,000 loan from the Vermont Economic Development Authority he still hasn’t paid off.
Crowl isn’t the only business owner facing higher contributions to the unemployment insurance fund, which he described as an unintended consequence of the state’s current insurance regulations. The West Hartford General Store was swamped under three to five feet of water, which owner John Farrow said “damaged everything.”
Farrow laid off his five employees, closed the store for seven months, and spent $300,000 to prop the business back up. But because of a higher U.I. rating, he went from paying a few hundred dollars of unemployment insurance quarterly to $1,759 per quarter.
He ended up with a $4,000 debt to the state, and interest and penalties now approaching $500 — all of which Farrow said he has refused to repay so far. Farrow appealed his rating with the Department of Labor, went through a labor court hearing, and has testified in the Statehouse, though he filed his initial complaint with Congressman Peter Welch.
“It’s totally unaffordable for me,” said Farrow, who is appealing the unfavorable labor court decision this week. “I’m penalized for a natural disaster, basically.”
State legislators, have taken note, and recently passed legislation in both the House and Senate, which shields the insurance rating of these businesses for eight weeks post-Irene, if they can prove that Irene directly forced them to lay off workers.
The legislation reduces Crowl’s bill from $40,000 annually to about $12,000 to $15,000 annually. Although he’s grateful for that relief, he still holds that he shouldn’t have to contribute extra to the fund, because of an insurance rating he couldn’t avoid.
The legislation was co-sponsored by Rep. Alison Clarkson, D-Woodstock.
Labor Commissioner Annie Noonan said in an email that choosing eight weeks as the right relief period strikes a “delicate balance between providing relief and minimizing the burden on unimpacted businesses.”
She noted that providing this retroactive eight-week relief to affected businesses will cost the state’s trust fund $8.6 million, which is borne by all businesses, including those who weren’t affected by Irene.
Eight weeks relief is all the trust fund can afford at this time, said Rep. Bill Botzow, D-Pownal, who chairs the House Commerce Committee which shepherded the legislation. “We went as far as we thought was fiscally prudent,” he said.
Noonan added that the average length of unemployment for those impacted by Irene stood at seven weeks, meaning that the legislation is generous enough to help many of the state’s businesses.
There’s no estimate of just how many businesses had their insurance rating skewed by the storm, said Noonan. Under the legislation, businesses first have to prove that Irene, and not some other factor, forced them to layoff employees.
There are, however, about 21,000 businesses in the 12 Vermont counties that were declared disaster areas because of Irene, Noonan said.
According to the legislation, the protection of a business’s insurance rating will apply only four weeks when it comes to future disasters. Noonan said the shorter period safeguards the integrity of the trust fund, and could always be extended by lawmakers in the future years if it proves inadequate.
Still, for Farrow, who took 28 weeks to get his business back on its feet, four or even eight weeks simply isn’t an adequate length of time to be protected from being required to make higher contributions into the state’s insurance fund.
Sen. Peter Galbraith, D-Windham, who introduced the bill on the Senate floor this week, also framed the question in terms of fairness, and defended the eight-week shield.
“I think we’ve come up with a fair solution,” said Galbraith, who noted the need to balance the solvency of the fund with the need to aid those who were worst hit. “There’s no solution that’s perfectly fair.”
“There are many kind of losses, acts of God, for which people get no relief at all,” he continued. “Again, if I had a magic wand, and we had unlimited money, I would absolutely give everybody the full amount.”