Vermont Legislature SmartTranscripts:

[Michael Marcotte (Chair)]: Good morning, everyone. This is the Lamoille House Committee on Commerce and Economic Development. It is Wednesday, 05/07/2026. That's eleven is it six? It's not six. It's from the day ahead. 11:02 in the morning, we're back from a much extended break, longer than five minutes. That's legislative time. But we had technical difficulties with our cameras. We couldn't get them working now that we have them working. We're here to have a conversation with the Department of Labor concerning the UI trust fund, the unemployment trust fund. I think every year we're required to receive a report in person from the Department of Labor just to let us know how the trust fund is doing. This is something from remember right, 2011, when we made all the changes to the UI system in order to make sure that we stay positive. So we have Matt Bearwoods with us, and we have Lauren Popcorn from the department. So thank you all for joining us this morning.

[Matthew Bearwoods]: Good morning. My name is Matthew Bearwoods. I am director of the Economic and Labor Market Information Division for the Vermont Department of Labor. Thank you for having me.

[Rowan Hawthorne]: I am Rowan Hawthorne, director of policy and legislative affairs at the department. Thank you for having us this morning.

[Matthew Bearwoods]: Great. As the chair teed up, we are here to talk about the unemployment insurance trust fund. Happy to take any and all questions as we go through the process. I will try and keep it to a level where we're dividing up the little pieces as best we can so that we can kind of make a full size puzzle. It can be kind of complicated and deep dives can happen. So open to those discussions. But we'll do highlights top level, and then we'll pick it through a couple of the key parts of it. So, in essence, the unemployment insurance trust fund functions like a rainy day fund. Unemployment insurance is no different than any other insurance where you have a lot of people paying in a little amount. And then should bad things happen to you, whether it's a car accident or your home insurance you need to collect, then large deposits come out. Obviously not to the scale of car insurance or home insurance. Unemployment insurance does have a broad base across all employers that are covered, that employee employer relationship that exists in the state of Vermont. Everyone is required to contribute for their employees, and we'll talk about contributions. So money goes into a trust fund. That fund is held separate and preserved solely for the payment of unemployment insurance benefits so that if someone comes forward and says, I've been laid off through no fault of my own, I will file for unemployment insurance benefits through the Vermont Department of Labor and ultimately will collect benefits from that pool. So money coming in through contributions and interest on that fund, we'll talk about that as well, and money coming out in the form of benefits.

[Michael Marcotte (Chair)]: I don't want to get ahead of you, but those funds that are collected are not state funds. Once they're collected, they're federal funds, which means the state has no way of grabbing any of that money.

[Matthew Bearwoods]: Correct. I don't know the official whose ownership. It is solely for the paying of benefits. This money is kept solely for that. So no other permitted uses associated with that. Well, at one time, there were

[Michael Marcotte (Chair)]: thoughts when we were having budgetary issues of maybe using utilizing some of those funds. It's quickly understood that you can't access those funds. So

[Matthew Bearwoods]: during good times of economic prosperity and growth, you're expected to see the fund grow so that you're building up that amount in the trust fund so that when there is a run on the fund in terms of an increase in filings, then if it's being paid out, that there's ample money to pay for it. Was that everything on that side? Okay. Great. So on the contribution side and there are a lot of mechanisms associated with the trust fund in terms of how contributions are set and can be, adjusted and naturally adjust. So the fund does some self regulating, and we'll talk a little bit about that as well. But on the positive side where money's coming into the unemployment insurance trust fund, employers pay quarterly on unemployment insurance taxes. And this is a big time right now. And we'll talk about the the the timing of all this, but it's quarter. So January, February, March, quarter ends. Employers have thirty days to file. At the April, we start collecting all of those contributions from first quarter. And so you'll see a very consistent time period across this. But the in 2025, we collected $71,000,000 in contributions. That 71,000,000 is gonna is up from 67 in change, so a 5.5% increase. And some of these numbers are gonna come back. I'll try and reiterate them, but that's 71 in contributions. So you can think about that as in the plus side. You got your little ledger going, we got okay. 71 in. And the tax rate itself has a couple of things that that employers the amount an employer pays is based on a couple of different things. One, there's a tax rate schedule. We'll talk about tax rate schedule. Two, there's a taxable wage base. We'll talk about that. So you

[Michael Marcotte (Chair)]: think about, like, Social Security up to a certain amount you pay taxes on. And then three, the employer's own experience rating, meaning an employer pays in contributions for all their employees at quarterly basis, and we get these reports. But then when an employee comes forward and says, I've

[Matthew Bearwoods]: been laid off through normal new fault of my own, I'm gonna start collecting benefits, those benefits are then signed back to that employer. So then a calculation can be made, which we call the experience rating. What is this employer's experience rating with the UI trust fund? Meaning how much are they taking out versus how much they're getting? How much are employees associated with this employer taking out in the form of benefits versus how much is being contributed. From there, all employers, all 30,000 across the state can be ranked from highest to lowest, and that's how you get your experience rating table. And we'll talk about what that ranking means. Questions so far on just the individual experience rating of an individual employer?

[Michael Marcotte (Chair)]: More of a curiosity question. How do you with the formula for those rankings, I mean, is that something that comes down from the federal government or is that

[Matthew Bearwoods]: Great question. The federal government, with the creation, I think in 1935, if I'm remembering correctly of unemployment insurance, federal government says, okay, we're gonna have an unemployment insurance system. All you states go run it. And each state can do things a little differently. So there is a little bit of a pick and choose of a menu options of what you can do. Vermont, obviously, this has been established for a long, long time. We are what's considered an array of state. And so the approved calculations for that are within that. So it's not like, we can't just make it up year to year, but there's only a couple of different variations. And I forget what the other one is. There's, it's not an array of state. It's gosh. I can't even remember what it's called.

[Michael Marcotte (Chair)]: It's something beyond. Yeah. I mean, I'm just wondering if there's some sort of framework there.

[Matthew Bearwoods]: Yeah. It's basic guidelines of the state. Yeah. No. There's basic guidelines and frameworks when we adopted ours. So this is the ones we chose for our overarching architecture. Those are like the underpinnings of our system. So it is based on three years, for example. Could we change that? I don't know. Can you see what array is? An array. Array a state? We are an array state. An array, thinking like the mathematical concept of arrays. Oh, I understand. Yeah. I love talking about arrays and matrices. I would be happy to go there. My and I even said I was gonna speak slower than the last presenter. So an array state. Thank you. That's the the term of art where we rank all our employers based on their experience rating for the past three years. Okay. We're moving on. So this is that pattern I talked about, contribution. So if you think about it from a timeline standpoint, employers know, okay, this is who we had on the books for the first three months. Now we have thirty days to file it. Now we need to pay our taxes. The money from the first quarter is the biggest pile of money because we have a taxable wage base. You only pay taxes up to the first dollars earned. And we'll talk about those levels. So if it's 13,000, you pay the 13,000. And then, you know, for the beginning part of the year, reset. So people haven't hit their max yet. And then when the money comes to us, it actually comes in in the second quarter. We're actually receiving it right now. And if this presentation was a week or two later, I would be able to tell you. First quarter contributions look like this. But as you can see, it represents about 50% of the activity. About 55 to 60% of all contributions are received now. We know exactly how our trust fund is going to play out. So q two in the in the time frame is the collection of q one taxes. And you can see how it goes down as the quarters progress. So technically, within q one, we collect the least amount of taxes because it's based on q four, and more people have hit their max and are not and employers aren't required to make contributions on those dollars that are paid in excess.

[Unidentified Committee Member]: But those Is that calendar year quarters? Yes, this is calendar year quarters. Yep. Okay. Yep.

[Matthew Bearwoods]: But there's a lot of funny things related to timing when we're talking about unemployment insurance. And even with our claims data, it's the same thing. If you're unemployed this week, you file for unemployment next week. And then when we do our reporting, it's like, what happened last week? What were our claims levels for last week? Which are based on unemployment for the prior week. So you have these weeks always where we're you kinda have to keep your frame of reference. And so q one is when all the money is earned. Q two is actually when we collect it in terms of the contributions. And then as the year goes on, goes lower. So, let's go for it. Now this is what we were talking about with taxable wage base. You're only required to pay taxes up to the x dollars that you earn. This is the maximum amount of employee's annual earnings subject to state unemployment taxes, and it is indexed annually. This was part the chair mentioned some reform that occurred in 2011. Previously, it was not indexed annually. And so contributions were very level at that point. But now because we do index it, we are experiencing growth going back to that $71,000,000 in contributions received being up 5% from the prior year. That's because we had an increase in our taxable wage base, so the amount that the trust fund is collecting. And so this is one of the mechanisms where, you know, outside legislation back in 2011 were able to support the fund when it was in an unhealthy position. Well, I mean, there are

[Michael Marcotte (Chair)]: a number of factors that got us into big trouble. One of them was the recession, of course, but the other piece was the taxable wage base was stuck at 8,000. Prior to that, I can't remember what year, 2002 or 2003, we started indexing the maximum weekly benefit up. So that means we're taking more money out, but we're generating the same amount of cash, basically. And so, as we started with recession, with more and more people on unemployment, we started depleting our trust fund.

[Unidentified Committee Member]: And

[Michael Marcotte (Chair)]: so we came up with a way of making sure that we have enough money in the trust fund at all times, and you'll see the levers that are pulling pushed if we never want to get to a situation like that again. So

[Matthew Bearwoods]: that is the taxable wage base. That's the threshold, the total wages paid or maximum wages paid that get taxed. Now we talked about the experience rating of an employer that would represent this up down, oops, yeah, up to down column, this zero to 21. If you count zero to 21, there's actually 21 rate classes counting zero. So there's 21 rate classes where the experience rating slots all employers in the UI system. So if you have no experience, so you've been contributing, you have no benefits charged against your employer account in the last four years, you'll find yourself at the zero level. From there, it is grouped out in equal chunks based on taxable wages so that there is an equal pool. It's not the same number of employers, it's the same number of wages Cause we want stability when we're, we're, we're taxing people and no one can have, if someone has two employers of the same rating, they can't be in different classes. So that will all be balanced out, of course. So up to down is your tax rate. And so the people who are the employers that, have the greatest utilization of benefits, they're gonna be towards the bottom, eighteen, nineteen, 20, and you can see what those tax rates look like. 4.7%, 5%, 5.4 versus the lower tax rates for people that aren't using it. The left to right is the tax rate schedule, which gets set annually based on a calculation, in essence, asking the question, how healthy is your trust fund? Do we need to start collecting more money? Does utilization looks like it's increasing so that the fund needs additional support? Because as you go from tax rate schedule one to two to three to four to five, it increases, and you'll see that across the board. Even at the zero class increasing from, 0.4% all the way to 1.3% in the extreme case of going from schedule one to five. And that would have been the situation that would have occurred in 2021 during the COVID recession had legislative intervention not occurred, but they said, actually, we can take a step back and see that the economy is not in total free fall, which it was in 2020 during the economic recession associated with COVID. So the legislative legislation stepped in to say, you know what? Do your calculation of what tax rate schedule we're gonna be, but do not consider 2020 in the equation. Then that'll allow us some stability, and that'll allow employers a little bit of a less of a shock of moving from schedule one to schedule five so quickly. Because the tax rate schedules, you know, you think about it I think about it like a your own your own budget for your household. How many days do you want in the bank should all your income go away? How much do you need in savings to cover your, you know, rent or mortgage, electricity, your food bills? Do you want three months? Do want six months? You know, that's what this trust fund is doing, and that's what this calculation of the tax rate schedules is doing, is it saying, okay, how much do have in the bank? So the calculation itself actually looks at the last ten years and say, was the worst year you had in the last ten years in terms of benefits paid out? Now let's look at the fund. How much does it have? And it does a calculation based on that. And right now, we are, in a place where, we are tax rate schedule one and, anticipate continuing to be there. For some reason, I don't know why or maybe it's coming up. Okay. That slide. Because I really wanted that. I thought it was, like, slide one. We wanted to announce this trust fund balance is around $310,000,000 right now. So about $310,000,000. It is? Okay. Well, you could just go there because this really need to be slide one. In retrospect of how I'm presenting, I really wanted to say, okay. As of week ending April 18, we have $307,000,000. This presentation was submitted and completed before we got last week's numbers, which puts us at 309. And for those keeping score, that 307 to 309, that's a plus $2,000,000 But that also includes that we paid out benefits. So we were just starting to get early people filing, just getting the first tail. It's about a three week process. And that was the first week where we got about $4,000,000 in contributions. And so we do see that contributions are coming in. And this week's numbers, we'll post tomorrow, we will know a a much better picture of how, the trust fund is growing. But, yeah, at $307,000,000, that keeps us at tax rate schedule one. Based on last, calculations done in December and double checked recently for this presentation, we need about $290,000,000 to stay at schedule one, right now. So we are currently in there, and we are, showing that. So let's see.

[Unidentified Committee Member]: Can we back up? What do you slide, please? Want to grasp this tax free

[Matthew Bearwoods]: Our matrix.

[Unidentified Committee Member]: Yeah. It's all neo to me. Yeah. I have some children who work at, you know, very stable Rutland Regional Medical Center, GE aviatonics,

[Michael Marcotte (Chair)]: for

[Unidentified Committee Member]: two examples. I assume their employers are probably in the best possible, good stable. But I also have one who works in seasonal road construction work for a major company. They they have a lot of contracts with the state and, you know, but it is weather dependent and all that. Where would they fall in?

[Matthew Bearwoods]: Yeah. Those are great questions. And so there is, one thing that we don't address is we're trying to keep it somewhat coherent as a presentation. First, I wanna acknowledge that so all employers, whether you know, if you have an employee employer relationship in the state of Vermont, you're required to have some form of unemployment insurance. Your employees are required. The employer can then elect to be a taxable employer, meaning we're gonna pay quarterly, or in certain cases, like potentially one of the large employers you mentioned, you could declare yourself a reimbursable, which is actually a reimbursable employer says, actually, I'm just gonna pay you dollar for dollar. You you tell me what my bill is, and I'll just send you a check. And so large institutions sometimes elect to do that for a little bit more cost certainty is my understanding. Only for nonprofits. It large nonprofits? I know it's typically like large. Yeah. Okay. Thank you. So municipalities.

[Michael Marcotte (Chair)]: Yeah. They're all reimbursable.

[Matthew Bearwoods]: Yeah. So they would just so for that particular instance, that might be an example of a reimbursable employer, where they're just paying what is due. But then when you talk about either seasonal employers or employers that have a recent history of layoffs, they're going to be towards the back because they just it's part of the utilization strategy. So they would potentially pay the maximum. And even they, in certain cases, employers could be paying at the twentieth rate class level and still not even contributing enough to cover their benefits. And they're what's called a net negative balance employer in our world.

[Unidentified Committee Member]: Now with those cases, would they fluctuate depending let's say, one year is a very dry year they can work from March till November as opposed to the next year where maybe they can't get out there till May, and they gotta stop in September because of weather and hurricanes and Mhmm. Stuff like that. So they can actually fluctuate, can't they?

[Matthew Bearwoods]: They can, a little bit. Oh, it is a three year calculation, so that would be one third of the calculation. And then it is a numerator denominator issue too. So what you're talking about potentially is if they had more wages, their denominator might be bigger because they had a longer employment season. The question would then be, were benefits impacted by that? Because people are only entitled to certain number of weeks of benefits. And if all their employees typically exhaust anyway, but if they had a shortened season, they weren't collecting as much, then yes, their numerator would be less and their denominator would be bigger, giving them a lower. So if that is possible. So that fluctuation does happen. The part that gets employers a little cheese sometimes is that their experience, like, could be improving. Like, overall picture is like, oh, we only laid off 10 last year versus normally we lay off 20. And yet our experience rating went up or our rate class went up. Why is that? Because you're measured against all other 30,000. So if your if everyone else is having even better days than you and they you know, people who normally do layoffs and didn't do any, they might have moved up and pushed you down. So it is all balanced out. So sometimes even if our experience rating, per se, it's getting lower, it's not lowering as fast as other employers. Therefore, tax rate could go up. That's where some people will be like, Just

[Michael Marcotte (Chair)]: realizing negative balance employers, season, really the seasonals, generally are pulling more out of the fund than they're contributing, which means that everyone else that's contributing has to make that up. So it's not an apples for apples.

[Matthew Bearwoods]: Yeah, that insurance model, who's a heavy utilizer of health care services or something might be getting more benefits than contributions, you hope that all just evens out over time. But we do see patterns. Certain industries are more prone to being highly taxed.

[Michael Marcotte (Chair)]: Sometimes, you know, when we talk about UI, unemployment insurance, that's the insurance that works, and we talk about unemployment tax, it's really your premium that you're paying for your employees.

[Unidentified Committee Member]: That structure helpfully frustrate attempts to game a system then, in terms of, if we're not gonna get what we would expect to see, there's no reason to bring these calculations into one's consideration in terms of your seasonal fluctuation or any sort of workforce choices that you may make from an HR perspective. Does that ever come up? I mean, that ever a concern in any states around how people might position or how they might present their workforce in terms of experience, etcetera, if they're expecting to see certain benefits and they don't happen. There's not a way to try to bring this to your advantage.

[Matthew Bearwoods]: So from the employer standpoint or the worker standpoint? The employers. The employer standpoint. And I'm happy to expand on this or take the answer in a different direction if the question was meant in a different direction. I think one of the ways that we most commonly see employers trying to game this say, for example, you're an employer that has a long history of doing seasonal layoffs or something. You know what we're gonna do? We're gonna start a new company. And you just change the sign out front from the ACME company to ACME company or whatever, and then you try and reregister yourself as a new employer and come in as a new employer. That's called pseudodumping, state unemployment insurance tax. You're trying to dump your old experience rating, and then you basically rehire all your staff. We actually have people within the department that are looking to track that and do catch that and say, this looks like the same company. You're doing the same thing. We're applying your old tax rate to this new company. I think I think we're

[Unidentified Committee Member]: all starting this last year. Mhmm. And that and how that plays into acquisitions or merger and just Yeah. The conversation that has to happen there.

[Matthew Bearwoods]: Yeah. Listen. And I think one of the ways we're seeing it, especially in this modern economy where everything is kind of getting Everyone's becoming so specialized in certain things. So we're even seeing situations where employers are actually setting up separate companies or partnering with other companies so that, like, you know, the classic example is the mail room. So if you have a lot of turnover in your mail room, you're like, well, why don't we just hire a mail room company and they'll be in our building running it, but they're not our employees. And so that's what you'll see in different aspects of businesses where you're just saying, okay, well, let's hire an accounting firm. Now even though they still could be in the building, they are not your employees technically, but they have a different they're not part of your your employment base. So you'll you'll see that as well.

[Michael Marcotte (Chair)]: Hey. One more question, if

[Unidentified Committee Member]: I may, about functionality and processing. For those dollar for dollar things like Reimbursement hospital, my son would do Do they pay in arrears based on actual costs for that period, or is it based on their history and they have to pay an estimated and then I think it's

[Michael Marcotte (Chair)]: just a bill. Yeah. It's a month behind. Yeah. Just one month.

[Matthew Bearwoods]: Okay. That's true. And just for the record, I'm not speaking on any individual employer, and I don't know if that individual employer is or is not.

[Michael Marcotte (Chair)]: Exactly. You know, in 2020 during COVID, there were a lot of layoffs and people, businesses that didn't take advantage of the payroll protection plan were laying off their employees, especially the ones were reimbursable employers, they were caught. They didn't have money set aside to take care of the funding of their employees. And so, the federal government stepped in to pay for some of those costs, but they were hit really hard. That's why we've had those discussions with good. And they've had those conversations as well, to make sure that especially our reimbursable employers are thinking about that, that ever happens again, they want to be thinking about having some money set aside to make sure that they can take care of anything, any other disaster that might happen where they have to have mass layoffs, because they're on the hook. They've chosen that way. They can choose to pay into the system, which then would cover them, but they have to look at it over the long run and where they better off. But they should still be thinking about setting some money aside. They're yeah.

[Matthew Bearwoods]: Can you back in there just for a second? Yeah. So this is just from a historical context, this is just important background because I think it's gonna level set us in the discussion of where we're at. So there's a trust fund balance from 1996 to present. And during the late ninety, we had positive economic growth and you can see 1996 growing, growing, growing trust fund grows until the year 2000. We do have an economic downturn at that point in the year 2000. It was not a significant economic downturn for Vermont. That was the .com, bubble. But Vermont, you know, had a little bit of a you know, it did have some downward experience from that. But the duration of that economy was quite short overall. And so you see actually in 2021 or 2001, 2002, we're coming out of that recession, and yet the trust fund continues to decline. And this is to the chair's point. At that time, contributions were not indexed, but a legislative decision to index benefits occurred. So if your money coming in is staying the same, but your money coming out is slowly growing each year, this is what a trust fund looks like when it is not in balance and doesn't have the proper mechanisms to support itself long term. And that is when I as as the record books, reflect, my predecessor was coming in and saying, hey. We need to start a conversation. You know, this annual over year trust fund, this these are good times. 2002 through 2006. These These are good economic times. We should be growing our trust fund. That was not the case. And, thankfully, those conversations were had and the groundwork was laid so such that the state could act quickly once the 2000 session, 2007 or recession began December 2007. So late, really took hold 02/2010. But you can see what happens to a trust fund, how quickly when benefits start rising, what can happen. And then there was major legislation in 2010, 2011 to allow the trust fund to return to its health. And you can see what happened. Massive amounts of growth all the way to we had nearly or a tick over a half $1,000,000,000 in the trust fund. And discussions are, what did we do with this trust fund? It looks pretty large. The COVID recession was unforgiving in many ways, but this trust fund was ready to take it, and it did, and we really pushed through many this this put many states across the country's trust fund upside down, the COVID recession did. My question was just exactly that. So other states were making very similar, had made similar decisions to put themselves in position to use Xin, or did the .com boom show a lot of states? Did we see that in other states as well? Or is this like Vermont,

[Unidentified Committee Member]: that decision you just described where indexing one side and not the other was really what showed Vermont what it is like?

[Matthew Bearwoods]: This is a and this is an interesting this gets outside of my realm of expertise. I can just speak to what I know about it. This is a public policy debate, and each state is a little different about that, how they handle the trust fund. Historically, Vermont has said, you know, we want to have a rainy day fund so that we can pay benefits should the need arise or when the need arise. It's not if, it's when. You know, recessions happen in the capitalist system. Other states are more, inclined to bond. There are still states paying off bonds from the two thousand and seven recession. You know? Others will just, levy broad based taxes, and make up for shortfalls there. But those are two of the more popular public policy discussions that other states have had and decide how to handle theirs. There hasn't been an appetite in Vermont I know about to bond, for example.

[Unidentified Committee Member]: Are payouts taxed as a taxable income when people receive these benefits?

[Matthew Bearwoods]: Unemployment insurance benefits? I believe it is a yes. Yeah. I believe it's income.

[Unidentified Committee Member]: Mean, that state is also able by having a healthy trust fund balance in something like this, they were able to continue to receive, I guess, state income taxes as rate.

[Michael Marcotte (Chair)]: Right. It's gonna be a lesser amount of portion. Your taxable, it's around 57% of your wage that you're going to receive. So it's not meant as total wage replacement, but it's to help you get from one job to another. So we don't need to be careful that we don't make benefits so great that it discourages people from seeking employment So

[Matthew Bearwoods]: as we get to post COVID recession, you can see the fund has kind of stabilized because of that adjustment to legislation saying, hey, don't consider 2020 as part of the calculation. Otherwise, they would have wanna get us back to $500,000,000 quickly. We would have gone from tax rate schedule one to tax rate schedule five and would have been there for ten years, maximum taxes. There were some discussions that, you know what? I don't think that's the right play. Let's take that ten year, the 2020 out of the calculation. So now 2020 is our worst year. It wasn't a great year, but as a base, it provides us a solid saying, hey, if you have $290,000,000 in the trust fund, schedule one should be adequate. And as we said, we collected $71,000,000 and we'll talk about benefits in just a second. But you can see the arc of the current trust fund. It is growing, but the rate that it's growing is slowing. So we have a slowing growth rate, but still over the year positive growth, which is a good thing.

[Michael Marcotte (Chair)]: The only thing we gotta keep in the back of our minds, and we have been in the last, as a recession hit it, then we start seeing a nice drop.

[Matthew Bearwoods]: And when a recession hits, it'll draw down the fund, and then when the fund starts dropping, say below that $2.90, the annual calculation say, okay, we need to start ramping up contributions. Let's go to schedule two. That's what the calculation was in this example. And that'll start increasing that 71,000,000 naturally.

[Michael Marcotte (Chair)]: You just wanna make sure we have enough money in the trust fund if a recession hits. Because if it hits too hard, it takes time for to for all of those levers to be pulled. And so we don't want to wind up where we were in 2010, 2011, where we were actually underwater, because there's other ramifications to that, too. Then there's penalties that have to be paid to the federal government that come out of the general fund, and also businesses are paying penalties. Right now, if we're solvent businesses only pay state unemployment, and they pay a small amount to the federal unemployment. If we're insolvent, then businesses are going to pay more to the federal, too.

[Matthew Bearwoods]: Yeah. The the federal government is kind enough to loan us money should we need it, but they do want interest, and they do wanna see that there has been legislative change or something to support the trust fund in the long run, and they enforce that by increasing federal taxes. Yeah. Okay. Now we're moving on. So this is now we're about the we're talking about the arc of the trust fund, kind of leveling off. We have a it's growing, but at a slower rate. Here is the unemployment insurance claims. So now these are total claims. I like this slide. I like spending time on this slide. This is where the two hours when I said I could do two hours, I would spend an hour here. The purple line is 2019. That was the lowest level of unemployment insurance claims we had ever seen. 2020 happens, 2021, 2022, those are elevated years. They're not even on the scrap. And actually 2022 was very much like this bottom cohort down here, all squiggly lines. But you can see that even though 2019 was low levels, everything since we've recovered from COVID starting in 2022 forward has been even lower. So claims levels have been lower. You can see the seasonal pattern. There's a very seasonal pattern. Our winters, you know, because we were talking about the seasonal patterns of employers, January through March are going be elevated as construction firms have yet to really build up. And then construction firms typically lay off in the fall. And you can see some of it does that. So summer is our quietest month for claims levels. And the black line is our current levels. And so we've been really tracking this black line because it has been higher, slightly higher. And the last part of 2025 was higher than 2024, just slightly. So we're like, just, you know, the red line being a little above everybody else, and now the black line being above everybody else. We're watching that on a week to week basis. This is one of the reasons that our trust fund is not growing as fast is our claims are slightly elevated. So in addition to benefit dollars being indexed and going up, that the amount of benefits paid annually going out is up, because we change that calculation every year and the indexing benefits up. We're also seeing elevated levels of claims, and it's showing up in our duration. So our current unemployment insurance duration is twelve point nine weeks, and a year or two ago, we were looking at eleven point two weeks. So we're up about a full week and a half in terms of duration. So people are staying on unemployment insurance a little bit longer right now. And these are some of those when you take your head out of the the Vermont economy and put it in the national framework, we're starting to see some signs of economic weakness across The US economy, and these are the ways it's showing up here in Vermont. Claims levels, duration, rising. Does it also

[Michael Marcotte (Chair)]: the retraction of the workforce have anything to do with the amount of money coming into the trust fund as well?

[Matthew Bearwoods]: Yes, it can. As our employment base declines, that's fewer people contributing. The other thing is, is normally job churn or job change is a sign of economic health, the more job churn, and that resets every time. So if I had a job for six months, I quit that job, I get a new job. I'm now paying you know, my old employer paid contributions on my first 14,800. Now my next employer is on the for paying contributions for my first 14,800. So job churn, as job churn or job change has slowed, that's also put pressure. Employment, overall declining as well, also putting downward pressure. And then the claims being slightly up. And we're just talking about slightly. You know, we're at the margin. Our unemployment rate is still very, very low. Our unemployed insurance population is still low relative to either historical trends or even just our share of our population. The contracting labor force means that there are a lot of jobs out there. There are opportunities. But still, if you are an individual on unemployment, it is not easy, and, it is never easy to find a job. And they consider almost full time work to to find a new job. And so so we are we do recognize that, particularly at the department. So questions on claims levels? So if not, then I would go right to that last bullet here where we're saying that total benefits paid was 67,700,000 last year, and that was up 8,800,000 over the prior year, up 14.9%. Now, dialing back some of those numbers I asked you to kind of hold in your mind, $71,000,000 in contributions, $67,000,000 in benefits. That's not a big increase. Right? You are still outpacing. Contributions are still outpacing benefits. Contributions went up 5%. Benefits went up 15%. You know? So you start seeing that arc. So what's making the big difference, hope, is on the next slide. Let's take a look. Trust fund interest earned. Right? So our trust fund weighing up about 15,000,000 about $14,000,000, $15,000,000 over the year. 10,000,000 of that is interest. So, you know, if you're got 71 coming in from contributions, you got 67 going out from benefits, You're plus four. You add $10,000,000 due to the interest. That $300,000,000 accruing interest, we're up 14,000,000. So that's getting us through right now. And we tried to highlight in some of our testimony last year how important interest is because you need a positive balance to be earning interest. You need $300,000,000 in a bank to earn $10,000,000 in interest. If that $300,000,000 drops to $200,000,000, this will also take a hit. If that drops to zero, this will be zeroed out as well. So our growth right now is driven by our balance for the most part. And that can push us through for a while. You know? I I don't have this problem in my personal finances, but I imagine Yeah. I just live off you. You know? So so that's where we're at. And this is a big part of the discussion we had talking about how what happens when you lose your fund balance, how you have to borrow, and and then the the state is on the hook for interest, and it has to come from sources other than unemployment insurance. So it's just they they put it back to the state, and, typically, Vermont has done that through general fund. That's also not, that's a tough conversation. Sure. Yeah.

[Unidentified Committee Member]: Questions, thoughts, questions? Just we don't have any influence over, how to use the balance to get a higher return on investment.

[Matthew Bearwoods]: Last time I checked, it was

[Unidentified Committee Member]: 10,000,000 on 300,000,000 is It's not not great. I just wanted to, as we're talking about this, that's not something that we can address.

[Matthew Bearwoods]: Nope, not fair knowledge. Yeah, I think it puts it at 2.8%, I think,

[Michael Marcotte (Chair)]: is what I think. I do know that

[Matthew Bearwoods]: problem, personally. Yes. Yes.

[Michael Marcotte (Chair)]: Questions? Yeah. What's next? Is it you?

[Matthew Bearwoods]: Oh, so and this just drives home the point. This is what we're talking about. So there are three columns here. This is how we track our stuff on a month to month basis. This is the most recent release that we are tracking at week to week. So we do know things, but, all this stuff has to get reconciled down to the penny. And so there's only you know, it takes a while for our fiscal department to stamp it and say, okay, that's valid. And this is as far as they have as far as December 2025 reconciled to the penny. And you can see that over the year growth of $14,000,000 between December 2025 and December 2024. You can look at November. The November change is really, what that indicates is how much more activity occurs in December than November. Really, that's really the storyline there. That seasonality we talked about. Unemployment insurance claims start really rising in December, and that's why benefits go up so much as they do. Claims go up as much as they do. The weeks claimed all increase and why there's downward pressure on the fund. There is information there that's interesting, highlighting the seasonal aspect of it. But really what I'm trying to highlight is the December 2025 to December 2024. And then ultimately that last column where if you look reading from the bottom up, where the, weeks claims slightly up, initial claims more up, benefits claimed or benefits paid more up. And so there's the cost of actual benefits being impacted, and then ultimately, the trust fund not growing as fast as benefits are.

[Unidentified Committee Member]: I'm guessing that Vermont has a higher proportion of net negative employers, Or do we? Good question.

[Matthew Bearwoods]: Know how answer that. Because of our seasonal nature?

[Unidentified Committee Member]: Yeah, I was just curious how that affects things.

[Matthew Bearwoods]: I would want to look into that because I don't even know how all states do it because we'd only be able to compare ourselves against other array states. There are others. But I'm always interested to learn other states. Like, they have their own seasonal things go on, that things I would never even consider industries that we don't have. Right. And so I I wonder about that. Mike. But it is a good question about how much was our net negative balance employers contributing to the overall requirements. Yep.

[Unidentified Committee Member]: While you're looking into that, the base amount that is taxed, can you just take a look and see how we compare to other states on that?

[Matthew Bearwoods]: We can. It gets a little weird when you start looking at that. It's kind of like property taxes because they're like in property taxes, your common level of appraisal, your CLA. So our taxable wage base doesn't mean as much as our array schedule sometimes. And so I think there's even certain states that have, like, taxable wage basis of, like, $30,000. But it's because their tax rate is different in how they handle that. So we can look at that and see. Some are indexed somewhere.

[Unidentified Committee Member]: That's a six week class, basically, for us to understand how to Yeah. Interpret

[Matthew Bearwoods]: It's always interesting to look at other states, but there's so many different ways that states do it that sometimes it's it can be educational in the ways that we think about how our trust fund functions, but ultimately, it doesn't change the questions we need to answer about how's our trust fund functioning based on our current system. And does it make sense for people receiving benefits and the employers paying their contributions? Is it balanced in that equation? But yes, we can look at that. We do get an annual publication, so that's not hard to pull.

[Rowan Hawthorne]: And for our last slide, I just want to give a brief update on modernization for the unemployment insurance system. And it is brief because things are going well. We don't have a ton to update. Everything is smooth. We are continuing on with testing. As you can see on the slide, everything remains on schedule. We're good to go for summer of this year. This is still a top priority. We're working as hard as we can across the department to support the rollout of this project. Everything's going well, like I said. We've got we've been doing a ton of testing and talking with folks as well. I don't know if last time we were in, which was sometime earlier this year, maybe February, we had talked about reaching out to, for example, in February. They consider they finished their usability study, and we were able to incorporate everything that they had requested be changed or recommended we changed, the majority of it. And then we also spoke with Vermont Legal Aid. They did some came in and did some testing, and we were able to incorporate about 75% of the changes there. There were a couple of things we weren't, but for the most part, we were able to. So overall, testing is going really well. We've started doing some town halls as well. We're collaborating with the Vermont League of Cities and Towns and specifically, and so meeting with a lot of different employers, municipalities to see what that system will look like for the back end. And we're gonna continue to bring in other groups. Yeah. We're gonna it's going well. Honestly, that's really mostly I have what I have to update with you. Are there any questions on that? Still this summer. We're continuing to just say this summer. Yep. And we will Yeah. We'll let you know if for some reason that changes. But, honestly, for now, we're looking good.

[Unidentified Committee Member]: Yeah. And just sorry. This is internal. It's gonna simplify things in the department externally. The folks won't notice a whole lot of difference, or they might notice. Like, how is that?

[Rowan Hawthorne]: They should notice the difference because everything it'll be a lot easier online. So for the claimant portal and for the business side, everything is gonna be much more online focused. And so really the goal, we're focusing a lot on security of the claimant portal in particular, and so folks can go establish initial claims and renew their claims each week as well. They can file a claim, and it's supposed to make sure that it's as easy as possible online so that the call center is getting fewer calls. And when the call center does receive calls, we're able to significantly reduce that hold time to be able to take care of issues quickly that wouldn't have been initially addressed when establishing initial claim online or filing a weekly claim. So it'll make things faster, easier, simpler. We have also been working a lot on language access too. And so the claimant portal will also be available in Spanish, and we will have interpreters available if other folks need it too. So accessibility, plain language, making it easy to understand and use, and ensuring that the department is here to support and can answer questions. And that's what the call centers will be able to do once this does go live. On the business side, everything should go a lot smoother as well.

[Michael Marcotte (Chair)]: What are you gonna do with all the employees that are doing Cobalt?

[Unidentified Committee Member]: Great question.

[Matthew Bearwoods]: We will let them stay retired.

[Unidentified Committee Member]: Good answer.

[Michael Marcotte (Chair)]: The question is, Matt, have you thought about, because now that modernization is moving forward, will be live sometime this summer, The other piece of legislation that we passed in 2021 and 2022, the added benefits, how that might affect the trust fund?

[Matthew Bearwoods]: Yes. I did not look, relook at that in preparation for today's testimony, but I do believe we did look at it. And so for background, at the time that it was decided that we would remove 2020 from the contributions calculation, which tax rate schedule, it was determined that there should be something to the benefit side of the house as well. And it was determined to us think they ultimately wanted a $25 increase to all benefit payments. And that was deemed we couldn't do it in the old system. What we could do is we could increase the maximum weekly benefit amount by $60 and the legislature even appropriated $8,000,000 to do that. And so the maximum weekly benefit amount has this extra $60 rider on top of it. And that $8,000,000 was spent down to, at the beginning of this year. The department is continuing to honor the $60 until the new system goes live, at which point that $60 will be replaced with a $25 to halt. And then my if off the top of my head, I believe net cost would be $4,000,000 to the trust fund in terms of increased benefits because as opposed to just the top end of the UI trust fund or the the top end of the benefit people payments getting 60 extra, you're now talking about everybody getting 25, and it would cost about $4,000,000 annually.

[Michael Marcotte (Chair)]: That's up to is that 100,000,000? So it's gonna be a number of years to pay that off.

[Matthew Bearwoods]: Yeah. I I I don't know that part of it, how that was written in the law or legislation, but

[Michael Marcotte (Chair)]: Yeah. It won't be really a huge hit on the trust fund year after year. But the reason we were really trying to stay away from maximum weekly benefit because those are the employees that are receiving the most. We really wanted to hit the people that were on the low end of the scale, give them more money, try to get by. So then we decided to stay with the 25 for everybody. Unfortunately, we couldn't do it through the system that we have now, so once it goes live, we won't be able to do that. But it was a negotiated position in order to remove twenty twenty from the calculation, which saved businesses a lot of money in the long run because we would be ramping up right now. We'd probably be in schedule five now. And our maximum weekly benefit, I mean our maximum, the wage base would be much higher than it is now. So we'd be pulling a lot of money out of the business community as well, to feed, to get us up to, I can't remember what it was we were going to hit, but it was going to be around a billion dollars, I think, by the time it reversed itself. And so this is a slower growth, so that was the bargain that was made then, was to get some more benefits to the employees as well.

[Unidentified Committee Member]: When you look at this, do you look on who is getting unemployment insurance? What salary ranges are getting the most unemployment insurance based on salary ranges paid in the state? Do have that data? The

[Matthew Bearwoods]: data that I see typically is actually, it's kind of like a mirror of that in terms of it's not the salary. I see the benefits. So I see the breakdown of people who are earning a certain benefit amount, and then, you know, you could reverse math that benefit now back to the income that needed was necessary to qualify for that. So I know, for example, that, depending on the season, anywhere from a quarter to one third of all claimants receive the maximum. So, we know that. And then you can see the breakdown of the remaining two thirds, so to speak.

[Unidentified Committee Member]: And what's the salary that you need to earn to be considered in the max?

[Matthew Bearwoods]: Oh, gosh. I haven't done that calculation recently. I I want to double check that one. I'm not going do that math on the fly.

[Michael Marcotte (Chair)]: How much is the maximum you benefit right now?

[Matthew Bearwoods]: That's another great question. Off the top of my head, we'd probably get off of the website. $7.28? $7.16? Maybe $7.28 plus the 60. I think it's $7.28 including the 60.

[Michael Marcotte (Chair)]: And that'll drop once you go live. Yep. Well, it'll drop $30.35 dollars. Right. Yeah.

[Matthew Bearwoods]: So we can do them the max salary to get the max benefit.

[Michael Marcotte (Chair)]: Questions? If

[Unidentified Committee Member]: if I need to go private with this one, with these folks, that's fine. But I'm a retired federal employee, and I did survive several short term federal government shutdowns without having to apply for unemployment insurance. Now, this most recent one was somewhat lengthier. And I know this resource, shall we say, is available. The understanding of the federal employee always, you're gonna get reimbursed, so you in turn would have to reimburse unemployment insurance. I don't know how that ever worked because we'd have to do it. Were your systems used at all this year by federal employees? Are you aware of any of that?

[Matthew Bearwoods]: I know that we had active messaging on our website saying, you know, you're welcome. But I believe you mentioned that they'd have to repay it

[Michael Marcotte (Chair)]: Right.

[Matthew Bearwoods]: If they were reinstated with all their wages. Yeah. That is a a true fact as well is my understanding. I don't know. What was our take up rate? It was small.

[Rowan Hawthorne]: Yeah. It was small. I don't have an exact number of individuals, but it was yeah.

[Unidentified Committee Member]: Know. We my wife is also a federal retiree now, but we always appreciated knowing that was there, but we always, you know, went Mhmm. Week to week to make sure we need to do we need to and

[Matthew Bearwoods]: Yeah.

[Unidentified Committee Member]: You know Yeah. Things came through.

[Matthew Bearwoods]: Yeah. Because federal employees don't pay into our state unemployment insurance taxes, and neither do railroad workers. They have their own systems.

[Michael Marcotte (Chair)]: That's great. You both for coming in. Maybe if there's more questions, you wanna dive more deeply into the UI trust fund and and the system, how it works, maybe depending on how long we're here before adjournment, and if you have time, we may ask you to come back in and do a deeper dive if the committee wants to do something like that. Okay, thanks again. Thank you. If you were on the floor at one, think the floor is estimated to go for $3.45, So let's see. It's 03:45, so let's come back in here. I just put on a bit more discussion on s seventy one, and then we'll be done for the day. We gotta be done by 04:30, I think. So Alright. With that, we can go off live. The three will be back.