NJ pays off its unemployment fund loan … but not for long
TRENTON – New Jersey has temporarily paid off the federal government’s loan to the state’s unemployment fund, but the reprieve is only temporary.
The unemployment fund receives its largest quarterly tax payments each year at the start of May, so the Department of Labor and Workforce Development was able to completely pay down the debt, which was $844 million as recently as a week ago.
“Right now, our loan balance is zero. I’d like to announce some breaking news,” Labor Commissioner Robert Asaro-Angelo said at an Assembly budget hearing. “It will soon not be zero any more, but right now it is zero.”
In February 2020, New Jersey had $2.95 billion in its unemployment fund. Then jobless claims surged amid the economic shutdowns ordered in the early days of the pandemic, and within six months the fund was drained and counting on federal loans to pay benefits.
The loans began in late August 2020. The balance peaked at over $1 billion for a few weeks in April 2021. Once before, for four days in August 2021, the balance had been paid off, and it was paid off again on Monday of this week.
“This is a recurring thing,” said Asaro-Angelo, who noted the balance fluctuates daily. “We got our quarterly payments in, but we know we are going to be paying out benefits that are going to necessitate more of a drawdown.”
The state now anticipates that it will be carrying a balance until May 2024, which is a year longer than it projected during last year’s budget review. The interest on the loan – currently charged at a rate of 1.59% – has totaled $6.3 million so far and is projected to eventually cost the state $19.8 million.
The balance doesn’t affect how much workers must pay into the unemployment fund, but it does determine how much businesses pay. The tax paid by each business is determined in part by how many workers they have laid off, causing them to seek benefits, and by the overall health of the fund, which guides which of six columns of rates to choose from.
“The current schedule we’re on is the one that was passed into law I believe in early ’21 that was passed unanimously, bipartisan,” Asaro-Angelo said. “Every single member of the Assembly, every single member of the Senate voted for the current payroll tax schedule that we’re on right now. So, it is unavoidable because it’s the law.”
For fiscal 2023, which starts in July, the rate will set by Column D. A 2021 law prevents it from moving as far as E+10%, where it otherwise could have been, a savings for businesses of $459 million. But by moving over one spot from the current Column C, the tax will increase by $216 million.
The state Labor Department projects that the rate will move to Column E, a $338 million tax increase, for the fiscal year that starts in July 2023 and remain there through at least June 2025.
The rate for the coming year could be lower than Column D, theoretically, if the balance of the fund was healthy enough to merit that.
“To my non-actuarial interpretation, that to me means that a tax increase is not a fait accompli,” said Assemblyman Gerry Scharfenberger, R-Monmouth. “If the lower rates apply, it could be the same rate we currently are at.”
“Unfortunately, that is not going to be changing,” Asaro-Angelo said. “It’s not a fait accompli but it’s based on the data and the receipts of the trust fund, and they will not be in the position to be lowering that column.”
“We’re not going backwards in the column. That’s for sure,” he said.
Assemblywoman Eliana Pintor Marin, D-Essex, asked to know what balance would be needed in the unemployment fund to trigger each contribution – the A column being the lowest rate because the balance is sufficiently high, with E+10% the highest rate because the fund has no money available.
“It’s important for us as we move forward as we prepare the budget,” said Pintor Marin, the chairwoman of the Assembly Budget Committee.
Business groups have been pushing for the state to commit some of its roughly $3 billion in remaining State Fiscal Recovery Fund money from the federal American Rescue Plan to the unemployment fund, preventing a tax increase or even lowering the unemployment tax rate paid by businesses.