Hochul Administration Pushes Back Against Unemployment Benefit Overpayment Reform

The bill proposed by state Senator Brad Hoylman-Sigal would create a waiver program to forgive overpayments when they’re the government’s fault or an accident by the claimant. It would also establish a clear definition of unemployment fraud that doesn’t apply to recipients who made honest mistakes, and direct the Labor Department to evaluate whether clawing back benefits would be against “equity and good conscience.”

But the reform effort has collided with a potential roadblock: New York’s nearly $7 billion debt to the federal Labor Department.

The impasse has disheartened legal advocates, who insist that the bill will not impact the debt.

“There is no fire, but people are running around shouting there is,” said Ciara Farrell, an attorney with the New York Legal Assistance Group.

Over the past two years, a coalition of advocates has worked with the state Department of Labor to iron out the wrinkles in the legislation. After multiple rounds of amendments, they thought they finally had the greenlight from labor officials. But after the bill passed through the Senate labor committee, advocates said, financial officials began to raise more concerns in late May over whether it could trigger a hostile federal response.

New York is dealing with its own repayment problem. The surge in Covid-related unemployment forced the state to borrow over $10 billion from the federal government to keep the safety net program operating at a time when taxes could not sustain the state’s Unemployment Insurance Trust Fund. The state has slowly paid some of that back, but the bulk of the debt remains.

When the bill advanced to the Senate Finance Committee, officials from the Division of Budget and Department of Taxation and Finance began raising concerns to the Senate Finance committee that the federal government could levy additional fees on New York employers if the state passed legislation that might make its unemployment deficit worse, according to advocates familiar with the discussions.

The budget division and governor’s office did not answer questions for this story. According to correspondence viewed by Hoylman-Sigal’s staff, the state Department of Labor has also been a part of talks with the budget officials, raising questions for advocates about whether the agency is continuing to fight the bill behind the scenes.

“Central finance staff at the Senate are saying that the Department of Labor have an issue with this bill, and they’re getting that from the DOB,” Farrell said.

Advocates say that the Hochul administration’s alarm is misdirected. They estimate that the forgiven overpayments would not meaningfully affect the trust fund deficit and argue that the federal Department of Labor has no legal ground to consider overpayments in deciding how to deal with New York’s unemployment debt. In their understanding, the federal government could only implement the penalty if New York were to change its unemployment benefit or tax rate.

“The state of the trust fund has nothing to do with overpayments in general or recoupment,” Farrell said. “This is a totally separate issue on how New York conducts itself in relation to its trust fund.”