NEW YORK TIMES: January 29, 2003
State Unemployment Fund Is Operating in the
By LESLIE EATON
New York State's unemployment insurance fund ran out of money last
month, forcing the state to borrow $418 million so far from the federal
government, according to the New York State Department of Labor.
The state has told the federal government that it may have to borrow
as much as $760 million.
The automatic federal loan means that unemployment
benefits for jobless New Yorkers are not at risk.
But it may prove expensive, because the most
recent loan, on top of two last year, means that
the state will have to pay interest on its borrowings,
according to the federal Department of Labor.
If it had not had to borrow money at the end
of the year, New York would have avoided interest
charges of 6.3 percent on its $231 million of
earlier loans, the principal of which has been
And if all the money the state borrows is not
entirely repaid by November 2004, New York businesses
face an automatic tax increase under Labor Department
That would be on top of an increase in state
unemployment taxes that this year will cost companies
an average of $50 more per employee, the state's
Labor Department said. The increase, to an average
of $360 per worker, is automatically imposed
when the unemployment insurance fund goes into
Gov. George E. Pataki, who presents his budget
today, has said he is opposed to "job-killing
taxes," and he has even proposed small tax
cuts or incentives for businesses to create jobs
in New York.
Texas is the only other state in the current
recession that has needed federal help to pay
its jobless benefits, although Minnesota has
signaled federal officials that it may need a
New York State's unemployment insurance program
provides up to six months of benefits for jobless
people who qualify; the maximum payment is $405
a week. Congress recently extended a separate
federal program that gives 13 more weeks of aid
to workers who have exhausted their state benefits
before finding jobs.
Robert M. Lillpopp, a spokesman for the state
Labor Department, said that "the long-term
devastating effects of the World Trade Center
disaster and the continuing national recession" are
to blame for the fund's deficit.
Since September 2001, the state's unemployment
rate has climbed to 6.3 percent from 5.2 percent,
seasonally adjusted; the increase has been even
steeper in New York City, where the jobless rate
now stands at 8.4 percent, up from 6.6 percent
in September 2001.
As a result, through mid-December of last year,
the unemployment trust fund paid out roughly
$650 million more in benefits than it did in
the same period of 2001, according to internal
fund documents supplied by the New York Unemployment
Project, a frequent critic of the state's
jobless programs. The project obtained the documents
through a Freedom of Information Law request,
said Jonathan Rosen, an organizer for the group.
The fund's revenues, too, rose last year, but
by far less than withdrawals to pay benefits.
Money from taxes climbed by about $213 million;
the state also received $491 million from a one-time
federal distribution, some of which went to pay
off the outstanding loans.
Mr. Rosen contends that the fund's problems
were caused not simply by the sharp increase
in joblessness, but also by the Pataki administration's
decisions to reduce unemployment insurance taxes
on businesses and keep the fund's reserves low
compared with the reserves in the funds of most
"It's crucial that people understand that
the state made bad tax choices, and that unemployed
people are paying the price," Mr. Rosen
said. Had tax rates remained at 1994 levels,
he said, the state would have billions of dollars
for benefits or services for the jobless.
The money would also be available to cover more
unemployed workers, Mr. Rosen said. Fewer than
half of all New Yorkers who lose their jobs receive
unemployment benefits, while in Connecticut 75
percent do, and in New Jersey the rate is 57
percent, according to an analysis by the National
Employment Law Project.
But the Business Council of New York State supports
the practice of keeping fund balances low, even
though its members are now facing an automatic
tax increase at a time of widespread economic
"In Albany, there is a strong and never-ending
temptation to spend pots of money, even when
it is earmarked for other purposes," said
Matthew Maguire, director of communications for
the council. As for extending or improving benefits,
he said, "the Legislature always has options
above and beyond the fund balances."
Given the huge deficits that the state is facing,
borrowing from the federal government may be
a sound move, said Frank Mauro, executive director
of the Fiscal Policy Institute, a labor-backed
research organization. But, he added, "It
shouldn't have gotten to that point."