NEW YORK TIMES: January 29, 2003
State Unemployment Fund Is Operating in the Red
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
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
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 repaid.
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
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 the red.
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 loan.
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
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 sluggishness.
"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."