THE 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 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 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 Department rules.

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 other states.

"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 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."