Virus-Outbreak-Unemployment-Benefit

Pedestrians pass an office location June 11, 2020, for the New York State Department of Labor in the Queens borough of New York.

(The Center Square) – With a $9 billion tab to the federal government in play, New York state faces choppy waters ahead in rebuilding the exhausted trust fund used to pay unemployment insurance benefits, Comptroller Thomas DiNapoli said recently.

In a new report this week, DiNapoli sounded an urgent call to state lawmakers to seek additional federal support or face the prospect of charging employers higher UI rates to replenish the fund and pay the debt owed to Washington, D.C.

The massive uptick in unemployment claims across the state quickly depleted the trust fund’s balance in the early months of the pandemic in 2020. To make good on the claims, the state took out a loan from the federal government.

“The pandemic put many New Yorkers out of work and forced the state to borrow heavily from the federal government to meet their urgent unemployment claims,” DiNapoli said in a statement.

As 2021 has progressed, the state has slowly chipped away at its debt to the federal government. In March, the balance hovered $10.2 billion, meaning $1.2 billion has been paid back.

DiNapoli said the state is faced with the two-pronged realities of repaying the remaining federal balance and replenishing the existing depleted trust fund.

“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. “Action is needed to avoid hiking costs for New York businesses and slowing the state's economic recovery.”

The state has already taken measures to address the dual challenges, which has resulted in higher payouts from employers.

New York state’s UI rates in 2021 increased to a range of 2.1% to 9.9%. Last year, the state’s UI rates were 0.6% to 7.9%. Several factors play into the amount employers pay for UI, including length of time as a liable employer and prior tax contributions into the trust fund.

While the unexpected swiftness of the pandemic took an immediate toll on the trust fund’s health a year-and-a-half ago, DiNapoli in his report asserted the state has historically been ill-equipped to deal with sharp increases in UI claims.

In early 2020, months before the pandemic hit, the U.S. Department of Labor singled out 22 states and territories for having UI trust fund balances below recommendations for maintaining solvency. New York, with a balance at the time of $2.65 billion, was on the list.

In a list of forward-looking recommendations, DiNapoli in the report encouraged lawmakers to seek further federal relief as mitigation to a slowed economic recovery.

“Specifically, the federal government could extend interest waivers that expired on Sept. 6, 2021,” DiNapoli wrote in the report. “This would avoid interest assessments that would begin to be assessed in 2021.”

Other recommendations in DiNapoli’s report include monitoring COVID-19 relief programs that could potentially strengthen the trust fund balance.

Additionally, DiNapoli is recommending against lawmakers taking out any new debt. For two consecutive years, the state’s debt limits have been waived.

“These practices have been cited by bond rating agencies as counter to best practices and detrimental to the state’s credit rating and fiscal outlook,” the report states.