It is never a good time to lose your job — but now may be an especially bad time to get laid off in New York.
That’s because the state’s unemployment benefit has been frozen for six years, so the maximum weekly payment is $504. That’s less than a full-time salary at the state’s minimum wage, and also lower than the benefit in neighboring Massachusetts, New Jersey, Connecticut, and Pennsylvania.
In every state across the country, unemployment benefits are funded by a payroll tax on businesses. And even though New York’s benefit is low, businesses complain that the tax is too high.
New York borrowed billions of dollars from the federal government to sustain its unemployment system during the Covid-19 pandemic, and it’s still paying that money back. That means higher taxes for businesses — to pay off the debt — and fiscal pressure that keeps the benefit rate for workers frozen.
Last week, the Assembly proposed paying off the entire more than $6 billion employment debt using the state’s reserves.
“Let’s use those funds,” said Assembly Labor Committee Chair Harry Bronson, who is championing the proposal. “If we don’t do anything now, we are going to have even more serious problems when the economy goes downward,” he said, referencing predictions of a possible recession this year and what Bronson said is economic uncertainty caused by “what is happening at the federal level.”
The Assembly plan would reduce company taxes and increase the maximum weekly benefit to about $860, an increase of more than 70 percent over current levels.
Not everyone agrees that the state should bail out the unemployment system — especially since the reason the state took on a debt in the first place was because employers weren’t being taxed enough to adequately fund the system.
“This would be the biggest giveaway to businesses since Andrew Cuomo eliminated the bank tax in 2015,” said James Parrott, the director of economic and fiscal policy at the Center for New York City Affairs at the New School, referring to the former governor’s tax cut that was widely criticized by liberals. “It’s an enormous bailout and most importantly it doesn’t do anything to fix the financing of unemployment insurance going forward.”
Corporate lobbying groups have backed the idea of using state money to pay off the unemployment debt. The state AFL-CIO, which lobbies Albany for union priorities, has pushed to increase the benefit level, as well.
“Our priority is ensuring unemployed workers can make ends meet if they lose their job through no fault of their own,” said Mario Cilento, president of the New York AFL-CIO, in a statement. “That is not happening now because the lingering deficit in the trust fund caused by the pandemic has kept the maximum unemployment benefit frozen.”
“This would be the biggest giveaway to businesses since Andrew Cuomo eliminated the bank tax in 2015.”
—James Parrott, New School Center for New York City Affairs
The Assembly’s plan needs the backing of Governor Kathy Hochul, who wields most of the power in budget negotiations. For the next month or so, Hochul and legislative leadership will hash out how the state funds and spends its approximately $240 billion budget.
Hochul put forth her own budget plan in January, and did not propose using state funds to pay off any of the unemployment debt. She did propose using $165 million in state money to cover this year’s interest payments on the debt — a cost that would otherwise be passed on to employers.
Her office did not comment on the Assembly proposal. Instead, a spokesperson directed New York Focus to the governor’s comment at a recent press conference: “I will not be negotiating outside the room where I meet the leaders,” referring to the leaders of the Senate and Assembly. (Hochul promised a new era of transparency when she took office, and said the days of “three men in a room” — the governor and two legislative leaders negotiating state business behind closed doors — were over.)
In a single month in April 2020, more than 1.7 million New Yorkers lost their jobs as Covid-19 hit and businesses abruptly shut down.
The state faced a flood of claims for unemployment benefits, and soon turned to the federal government — as 22 states did that year — to borrow more than $10 billion.
The unemployment system is supposed to stabilize the economy during an economic downturn, replacing about half of workers’ wages and, ideally, allowing them to keep paying the bills. This also prevents the economy from going into a downward spiral.
But most everyone agrees that New York wasn’t paying enough into its Unemployment Insurance Trust Fund. For decades, the federal Department of Labor has considered New York’s unemployment insurance program to be insolvent, meaning that it is not paying enough into the system to fully fund it during a downturn.
Lawmakers and policy advocates have put forth various proposals over the years to make the system solvent — mainly by increasing the tax rate on employers, or by increasing the percent of an employee’s wage that is subject to the tax. (In New York, the portion of an employee’s wage that is taxed is very low, which disproportionately benefits high-wage employers such as in the finance and tech industries.)
Only two states, New York and California, are still paying back their debts to the federal government.
In order to pay off the debt, businesses have had to pay a higher tax rate. Corporate lobbying groups argue that businesses should not be responsible for paying off the debt accrued during the pandemic.
“What was unique about the pandemic is that state public policy decisions led to the closure of businesses,” said Ashley Ranslow, New York director of the National Federation of Independent Business. “Even when businesses started to reopen there were substantial restrictions. And this really led to the unemployment crisis, with just an unprecedented amount of people being laid off.”
The National Federation of Independent Business and the Business Council, another corporate lobbying group, have advocated for the state to use its funds to pay off the debt. They note that many other states that borrowed from the federal government to pay unemployment claims then used federal pandemic aid to pay off the debt — while New York opted to use federal aid to build up its budget reserves.
Ranslow also said that the taxes have “impacted the competitiveness” of New York businesses.
According to US Department of Labor estimates, New York employers pay an average unemployment payroll tax rate of 0.5 percent of wages, on par with or lower than neighboring states.
Albany may be poised to act this year, with key constituencies lobbying the state to tackle the issue, and lawmakers concerned about economic disruption.
“There is an alignment between both the labor side and the business side that they want to retire this debt,” said Republican Assemblymember Edward Ra on a recent episode of the Capitol Pressroom podcast.
The Assembly proposal would spend $7 billion in reserves to pay off the entirety of the outstanding debt, plus invest some funds into the Unemployment Trust to make it solvent in the eyes of the federal government — allowing the state to increase the benefit level, Bronson said.
Policy experts say that support from labor and business to solve the problem should give the state an opportunity to also reach a compromise to adequately fund the system for the long term.
“The state is in a position to work out some kind of deal by making a one-time contribution to fix the debt issue — but that only makes any sense in policy terms if is paired with fixes to the benefit and funding side,” said Nathan Gusdorf, executive director of the liberal think tank Fiscal Policy Institute.
The risk of a recession — and the surge in unemployment it would bring — add urgency to the issue, Gusdorf added. “The moment is now to get this fixed.”