[Marxism] New York Is Forced to Borrow to Pay Jobless Claims

[Bonnie Weinstein <giobon@xxxxxxxxxxx>]

New York Is Forced to Borrow to Pay Jobless Claims
"More than 500,000 people were collecting unemployment checks in New  
York State in the first week of this year, nearly three times as many  
as a year before."
By PATRICK MCGEEHAN
January 22, 2009
http://www.nytimes.com/2009/01/22/nyregion/22benefits.html?hp

New York State’s unemployment insurance system, besieged by claims  
from laid-off workers, ran out of money on the first business day of  
the year and is borrowing daily from the federal government to bridge  
a fast-growing and potentially huge deficit, state labor officials say.

Despite paying lower benefits to its jobless residents than other  
Northeastern states, the state’s unemployment fund has been borrowing  
about $90 million a week from the federal unemployment trust fund,  
state officials said. The deficit has already reached $212 million  
and is expected to exceed $2.5 billion by the end of 2010, they said.

Those loans could wind up costing the state’s unemployment fund more  
than $100 million in interest and could result in a punitive tax on  
all employers across the state two years from now, state officials  
and experts on the unemployment insurance system said.

More than 500,000 people were collecting unemployment checks in New  
York State in the first week of this year, nearly three times as many  
as a year before.

The system’s ballooning deficit is a result not only of the flood of  
new unemployment claims, but also of the relatively low payroll tax  
that finances unemployment benefits. The state has not increased that  
tax in nearly a decade, mainly because of opposition from business  
groups, making it difficult to avoid shortfalls even in milder  
downturns, officials and experts say.

The state fund also had insolvency troubles, though less severe,  
after the recession that began in 2001. But disputes over how to fix  
the system prevented Albany from taking action, leaving the state  
vulnerable to a replay this year, state officials and advocates for  
low-wage workers said.

The state’s poorly financed unemployment system has had another  
consequence: New York pays lower benefits than about two dozen other  
states, including all of its neighbors.

New York’s maximum weekly unemployment benefit of $405 has not  
changed since 2000. Other Northeastern states that offer  
significantly higher benefits have indexed them to rise with  
inflation. In New Jersey, for example, the maximum weekly benefit  
rose to $584 from $560 on Jan. 1. Connecticut, Vermont, Pennsylvania  
and Massachusetts also pay higher benefits.

That disparity came as surprise to Yvette Joseph, 51, who worked for  
an advertising company for 25 years until she was laid off in  
mid-2008. Since then, Ms. Joseph, who lives in East Flatbush,  
Brooklyn, with her husband and three children, has been collecting  
$405 a week in benefits, far less than the $55,000 annual salary she  
earned. To keep up the $2,800 monthly mortgage payments on her  
family’s home, she has been borrowing from her 401(k) retirement  
savings plan, she said.

“Are you serious?” Ms. Joseph said when told how much higher benefits  
can be in other states. “I thought that New York probably pays the  
most because, you know, it’s New York. It’s a big state.”

New York applies the payroll tax only to the first $8,500 in annual  
wages paid to each employee, a limit that also has not changed this  
decade. Many other states tax a much higher portion of wages. In New  
Jersey, the taxable base is more than three times as high, at  
$27,700. In Connecticut, it is $15,000.

“The taxable wage base in comparison to wages is very low,” said  
Andrew Stettner, deputy director of the National Employment Law  
Project, which has been lobbying for an overhaul of the entire  
unemployment insurance system. “The way I see it is, maybe the  
solvency problems will spark people in Albany to make some real fixes  
of the unemployment program at a time when it’s really needed.”

The strains on the state’s fund began to show almost immediately  
after the holidays, when the number of New Yorkers applying for  
jobless benefits spiked. On Jan. 2, the first business day of the new  
year, more money went out to the unemployed than came in from  
employers, forcing the state to borrow $39 million from the federal  
fund, state officials said. Since then, it has borrowed more than $80  
million a week.

“I think we went insolvent about two hours into 2009,” said M.  
Patricia Smith, the state’s labor commissioner. “We’re seeing 50  
percent more claimants each week than a year ago.”

Ms. Smith said she would press lawmakers to reconsider a solution to  
the chronic shortage of funds for the state’s unemployed. Republicans  
have typically fought raising the payroll tax, but this year, for the  
first time in decades, Democrats control both houses of the  
Legislature and the executive branch.

Still, worries about raising taxes during a deepening recession may  
again thwart efforts to overhaul the system, state officials said.  
Indeed, although Ms. Smith said that aides to Gov. David A. Paterson  
had expressed support for the idea, the governor did not include the  
proposal in his budget.

Assemblywoman Susan V. John, a Democrat from Rochester, the  
chairwoman of the Assembly’s Labor Committee, sponsored a bill last  
year that would have raised benefits and the taxable base in stages  
over several years. Had it passed, the legislation would have raised  
the maximum weekly benefit to $475 last fall, then to $550 this year  
and $630 next year. After that, it would have been set at half of the  
state’s average weekly wage.

Ms. John said that even if her bill had passed last year, the state’s  
fund would still have run into a deficit this year. But, she added,  
the proposed changes would gradually have solved the problem of  
recurring shortfalls. She said she remained optimistic that the  
Legislature would reconsider updating the system. Still, with the  
state facing a $13.5 billion budget deficit, she said, “There may not  
be the stomach to also raise the revenue to stabilize the  
unemployment insurance fund.”

Insolvency in the unemployment system can cost both the state and  
employers. When a state cannot repay loans from the federal fund, as  
New York failed to do from 2003 through 2006, it incurs interest at a  
rate set by the United States Treasury. (This year’s borrowing rate  
was set last week at 4.64 percent, according to state officials.)

And if the debt is not paid off within two years, the federal  
government takes away part of the tax credit that employers receive  
for complying with the rules of the unemployment insurance system.

In 2005, employers in New York State paid a penalty that amounted to  
$14 per worker; in 2006, that penalty doubled to about $28 per  
worker, Mr. Stettner said. The revenue from that special assessment  
went into the state’s unemployment fund to help repay the debt to the  
federal fund.

The penalty falls even on businesses that do not lay off workers, and  
in 2005 and 2006, some small employers who had not added to the  
unemployment fund’s burden complained about having to pay the  
additional tax, Mr. Stettner said.

Still, the business lobby has remained opposed to raising the payroll  
tax. Last year, the Business Council of New York State, the largest  
statewide business organization, also objected to Ms. John’s bill,  
because it would have raised the tax and benefits automatically each  
year, something other states do.

Michael Moran, a spokesman for the council, said he expected the  
subject to surface in Albany again soon because of the shortfall in  
the system. But that is no guarantee of action.

Of the nine states that had to borrow to pay unemployment benefits  
during and after the last recession, only Texas borrowed more than  
New York, according to a study published by the Urban Institute.  
Texas and four of the other states that borrowed — Illinois,  
Massachusetts, Minnesota and Missouri — made legislative changes to  
try to avoid another bout with insolvency. But New York has not.


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