N.Y. Faces Tax Hike Over $9 Billion Debt for Jobless Checks

(Bloomberg) -- Federal unemployment taxes on New York businesses are poised to increase to repay $9 billion borrowed from the U.S. government to cover a historic surge in jobless claims during the Covid-19 pandemic, state Comptroller Thomas DiNapoli said. 

New York’s unemployment insurance trust fund was quickly depleted last year by a record wave of claims from laid-off workers in restaurants, hotels, retail shops and small businesses. That triggered a surge in payments, with the volume of regular state unemployment benefits rising to $6.5 billion at the end of the second quarter in 2020 from $530 million at the end of 2019.

“The obligation to pay back this money and rebuild the trust fund balance presents a serious challenge for the state and businesses struggling to recover from the pandemic,” DiNapoli said in a statement. “Action is needed to avoid hiking costs for New York businesses and slowing the state’s economic recovery.”

New York was among states including California, Texas, Ohio, Illinois and Pennsylvania that borrowed billions of dollars from the federal unemployment trust fund as the pandemic shut down vasts swaths of the economy and sent unemployment surging. New York’s unemployment insurance trust had about $2.7 billion at the end of 2019, less than half the minimum needed to remain solvent during even a typical recession. 

New York’s debt to the federal government is twice what it owed after the Great Recession, though down from a high of $10.2 billion at the end of March, DiNapoli said.

Unemployment insurance benefits are paid for with federal and state taxes collected from employers. Federal unemployment insurance tax rates on businesses will increase to 0.9% from 0.6% in 2022 if New York continues to hold a negative balance on Jan. 1 and doesn’t meet certain federal rules by Nov. 10, DiNapoli said. Federal tax rates will continue to grow by 0.3% each year until the state hits a maximum rate of 6% until the debt is paid off.  

State unemployment insurance tax rates have already increased to the highest level permissible under the law. The rates rose to a range of 2.1% to 9.9% of taxable payroll in 2021, an increase from 2020 rates that ranged from 0.6% to 7.9%, DiNapoli said. As a result, employer tax payments grew between 26% and 160% in 2021. Employers will continue to pay rates up to 9.9% until the state has paid off the federal debt. 

States can uses federal aid from the CARES Act and the American Rescue Plan to make one-time payments to replenish state unemployment insurance funds and repay outstanding federal loans. Georgia and Ohio plan to direct $1.5 billion in federal aid to their unemployment trust funds and Maryland dedicated $1.1 billion, DiNapoli said. More than 32 states are using or considering using CARES ACT or ARP funding to shore up their funds, according to the National Conference of State Legislatures.

New York’s $209 billion budget for the fiscal year that began April 1 didn’t direct any of the approximately $13 billion it’s receiving under the American Rescue Plan to repay its federal unemployment loan.

State lawmakers should lobby for more federal support, examine existing pandemic relief programs for any money available to repay the advances and avoid issuing debt to pay off the balance, DiNapoli said.

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