Lawmakers Propose Unemployment Bailout — But No Permanent Fix

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 unemployment 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.”

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.)

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.