COMPILED BY MATT GLYNN
Feb. 23, 2022
Bracing for big increases in unemployment insurance premiums
New York State owes $9.3 billion to the federal government for funds borrowed to cover the cost of unemployment claims that soared during the pandemic.
Now the bill from Uncle Sam is coming due. And small businesses worry they will get stuck with the tab, in the form of significant tax increases.
Advocates say if small businesses are forced to absorb the cost, it could slow their hiring and undercut their efforts to get back on their feet.
The added costs – advocates say the costs could add up to an extra $21 per worker on average – would come at a time when the region's job recovery has stagnated and remains slower than the nation's rebound.
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Here's how the state got into this situation and what's at stake for employers:
When the pandemic struck the U.S. economy in full force in March 2020, many businesses were shut down or restricted on how they could operate. Employers laid off workers, and unemployment claims skyrocketed.
The amount New York State paid in unemployment insurance benefits soared from $530 million in the fourth quarter of 2019 to $6.5 billion in the second quarter of 2020, according to state Comptroller Thomas DiNapoli. From March 2020 through the end of August 2020, New York State's unemployment system paid out more than $100 billion in unemployment insurance benefits.
"No one is questioning how unprecedented all of this was," said Grant Loomis, vice president of government affairs at the Buffalo Niagara Partnership. "But we have to remember it was not employers who created this unprecedented level of unemployment."
The state's unemployment trust fund wasn't in strong financial shape before the pandemic, and it was overwhelmed by claims when the pandemic hit.
New York, like many other states, turned to the federal government for help, in the form of loans.
Funding the system
How much employers pay into the state's unemployment system is based on factors including their "experience rating," which refers to how much they use the system. The state prevented employers' experience ratings from rising because of pandemic-related layoffs.
Even so, what employers paid in overall unemployment insurance taxes soared from 2020 to 2021. DiNapoli's office calculated a 25-employee business with a low experience rating – that is, one with few unemployment claims – paid $2,790 for all employees in 2020. That more than doubled to $7,245 in 2021, an increase of $4,500.
The same-size business with a high experience rating saw its unemployment insurance taxes jump from $23,960 in 2020 to $30,225 in 2021.
Employers are facing a possible increase in their federal unemployment insurance taxes to 0.9% – equal to $21 per worker – if the debt isn't resolved by November. If there's still a balance as of January 2023, that tax rate could go up to 1.2%, or $42 per worker.
Unemployment rates have plummeted since the pandemic hit. In the Buffalo Niagara region, the jobless rate was 3.3% in December, compared to 20.9% in April 2020. But paying for the unemployment benefits already distributed remains to be resolved.
DiNapoli cautions that if the $9.3 billion owed to the federal government isn't resolved by Nov. 10, employers face a big hike in their federal unemployment insurance taxes to help make up the difference.
"Action is needed to avoid hiking costs for New York businesses and slowing the state’s economic recovery," he said.
If those higher costs become a reality, businesses might compensate by cutting back on hiring or raising the prices of their goods and services, said Ashley Ranslow, New York state director of the National Federation of Independent Business.
Nine states, plus the U.S. Virgin Islands, still have outstanding balances with the federal government related to loans for their unemployment trust funds. New York State's balance is second only to California's $19.5 billion.
Business advocacy groups say there's a way to avoid placing the burden on businesses: using unspent American Rescue Plan funds that the federal government sent to New York. Thirty two other states have applied pandemic aid toward that purpose, Ranslow said.
The state Department of Labor has asked the federal government to forgive the loan entirely "given the historic nature of the economic downturn that has impacted every state, or at least at a minimum, forgive the loan interest as Washington did following the Great Recession in 2009 when the state had a loan of nearly $4 billion that New Yorkers paid off."
Loomis said business advocates are still trying to persuade state lawmakers and Gov. Kathy Hochul to protect small businesses by using American Rescue Plan funds to pay down the tab.
"This is a massive hit that's looming," he said.
– Matt Glynn
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The Buffalo Next team covers the forces reshaping the Buffalo Niagara economy. Email tips to firstname.lastname@example.org or reach Buffalo Next Editor David Robinson at 716-849-4435.
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