You asked for a description of the recently enacted federal economic stimulus law (PL 107-147), with particular regard to its provisions regarding unemployment compensation. You also wanted to know how much the legislation will provide in additional unemployment compensation and tax benefits, including Connecticut's share of these benefits if available.

SUMMARY

The Job Creation and Worker Assistance Act of 2002 (PL 107-147 the act) contains three major provisions. They are: funding to states for extended unemployment compensation benefits, a wide range of tax benefits for businesses, and tax benefits for employers and others in the part of New York City that was most affected by the September 11, 2001 attacks.

The act allows states to enter into agreements with the federal government for a temporary extended unemployment compensation (TEUC) program. The program provides benefits for up to an additional 13 weeks for individuals who have exhausted their 26 weeks of regular coverage. States with high unemployment rates are eligible for funding to provide a second 13-week period of benefits. The agreement must cover weeks of unemployment that end before January 1, 2003. For Federal FY 2002-03, states can also provide benefits to people who otherwise would not qualify. These include people who (1) are seeking only part-time work or (2) are ineligible because they had insufficient earnings or employment in the base period normally used to determine eligibility, but would be eligible with the adoption by the state of an alternative base period. The federal government will fund these benefits. This part of act is available on Congress' Website, http: //rs9. loc. gov/cgi-bin/query/D?c107: 1: . /temp/~c107jCpdoP: e18215: .

The act also allows businesses to depreciate certain types of property more quickly. It expands provisions that allow them to carry back net operating losses. It extends 15 expiring tax benefits, ranging from tax credits for renewable energy facilities to a favorable tax treatment of rum from Puerto Rico and the Virgin Islands.

Congress' Joint Committee on Taxation estimates that the revenue effect (net cost) of the act's unemployment compensation provisions will be $ 8. 5 billion in Federal FY 2002-03. (The revenue effect takes into account not only the expenditures authorized by the act, but also the taxes that are derived when people and businesses spend this money. ) The overall revenue effects of these provisions will be $ 13. 1 billion for the period 2002-07. In comparison, the Federal FY 2002-03 revenue effects for the business tax benefits are approximately $ 44 billion ($ 30. 8 billion for the 2002-07 period. ) The revenue effects of the New York City provisions are $ 484 million in Federal FY 2002-03 and $ 4. 8 billion for the 2002-07 period.

Connecticut will receive approximately $ 101 million under the unemployment compensation provisions of the act. We were unable to find estimates of how much businesses in the state will benefit under the other provisions.

UNEMPLOYMENT COMPENSATION

Participating states must make TEUC payments to individuals who: (1) have exhausted all rights to regular compensation under their state's law and federal law, (2) are not entitled to regular compensation under another state's law and are not receiving compensation under Canadian law, and (3) filed an initial claim for unemployment compensation on or after March 15, 2001. In addition, the individual must have had at least 20 weeks of full-time insured employment or the equivalent in insured wages. The benefits apply to weeks of unemployment: (1) beginning after the date the state enters the agreement; and (2) ending before January 1, 2003. All states are eligible for funding to provide benefits the first 13 weeks of additional benefits.

States with high rates of unemployment are eligible for funding to provide a second 13 weeks of benefits. To be eligible, the state's 13-week moving average insured unemployment rate is (1) at least 4% and (2) at least 20% higher than the average rate for the same 13-week period in the two preceding years. It appears that Connecticut does not meet these criteria at this time.

In addition, for Federal FY 2002-03, states can choose to use the funds to provide unemployment compensation benefits to people who are otherwise ineligible. These include people (1) who are seeking, or are only available for, part-time work or (2) who would be eligible for regular unemployment compensation under state law under an alternative base period. (The existing base period does not count the most recent calendar quarter in determining whether a person is eligible for benefits. Allowing use of an alternate base period that counts this quarter can help low-wage workers, including those that have come off of welfare. ) The Labor and Public Employees Committee has recently favorably reported bills to amend Connecticut's unemployment compensation to permit benefits for both categories of people.

States can use these funds to:

1. reduce unemployment insurance taxes;

2. enhance a state's Unemployment Trust Fund balances; and

3. pay their costs in administering unemployment compensation laws and operating public employment offices.

The act establishes requirements for agreements between states and the federal government, coordination of TEUC and other unemployment compensation benefits, and financing of the TEUC program. It establishes penalties for people who knowingly collect benefits to which they are not entitled, and provides for state recovery of overpayments from these people.

TAX BENEFITS

The legislation provides businesses with a 30% depreciation bonus for certain investments made after September 10, 2001 and before September 11, 2004. (Under federal tax law, businesses are able to depreciate property over a period of time that varies by the type of property. ) This provision applies to investments in such things as computers and software, motor vehicles, factory machinery, and improvements to leased commercial property. It does not apply to such things as residential real property and property that depreciates over periods of more than 20 years.

The act also allows businesses to carry back 2002 net operating losses for five, rather than two years. This will benefit firms that had substantial tax liability in the late 1990s but are currently operating at a loss.

Finally, the act extends 15 expiring tax provisions that benefit businesses. The most significant of these will allow businesses to continue using foreign statements of insurance reserves under certain circumstance, which will have a revenue effect of $ 9 billion in the 2002-07 period. Other significant provisions include extensions of tax credits for electricity produced from renewable resources and the Work Opportunity Tax Credit.

NEW YORK CITY PROVISIONS

The legislation makes employers with fewer than 200 employees eligible for Work Opportunity Tax credits for individuals they hire that work in or are relocated from the "Liberty Zone" (the part of Manhattan located near the World Trade Center). It expands the depreciation bonus described above by (1) having it apply to residential and non-residential new structures and (2) sunsetting the bonus later in the zone than in other parts of the country. The legislation establishes a shorter depreciation period for leasehold improvements made within the zone. It also reduces the tax implications of New York City's refunding of bonds it had issued.

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