Unless the state swiftly acts, New York employers may soon face significant unemployment insurance rate increases.
New York State Comptroller Tom DiNapoli recently released a report detailing the dire financial status of the state’s UI system, confirming concerns that the BNP raised this summer.
Use the BNP’s one-click tool to tell the Governor to act, available here.
Utilization, Fund Balance Affect UI Rates
UI rates vary by employer, based on UI utilization of former employees (experience rating), the size of the employer’s taxable payroll, and the balance of the state’s UI fund. Based on these variables, an employer’s UI rate can range from .075% of payroll to 9.9%.
If an employer’s former employees increase utilization of UI, the employer’s rate may go up. Additionally, if the state’s UI fund becomes depleted, an employer’s rate may increase to refill state coffers.
Pandemic Added Unsustainable System Stress, Debt, and Rate Increases
The COVID-19 pandemic and related government-mandated closures caused unprecedented levels of unemployment. In the 4th quarter of 2019, NYS distributed $530 million in UI benefits. In 2020 Q2, NYS distributed $6.5 billion in UI benefits.
Although the pandemic strain was expected, New York was not well situated going into the pandemic. In February 2020, as New York was unknowingly on the brink of our first COVID wave, the U.S. Department of Labor found that New York’s UI balance was below the recommended levels needed for solvency.
Because of the explosion of UI utilization, New York quickly needed federal assistance. The state accepted billions in federal advances, which kept the system operational. However, New York now owes Washington a $9 billion balance.
This debt in the UI fund means that employers will face high UI rates to replenish the fund until the balance is paid off.
Prior State Action Insufficient to Protect Employers
In March 2020, the State Legislature enacted legislation to protect employers from rate increases due to pandemic-associated layoffs. Since many employers could not legally operate at that point in the pandemic, this legislation was intended to insulate their experience ratings from layoffs that were beyond the employer’s control. The BNP advocated for this legislation, and it was needed to protect employers from increases.
However, that legislation was not enough. Due to the federal debt and depleted fund balance, employers are still facing major UI rate increases.
In the report, the Comptroller warned that if the state still holds this balance by January 1, “employers’ federal tax rates will go up to 0.9% for 2022, representing an additional federal tax payment of $21 per employee.”
DiNapoli Makes Recommendations
At the end of his report, Comptroller DiNapoli made policy recommendations for state leaders:
- Ask for federal relief for loan interest;
- Use state aid from American Rescue Plan to pay off balance;
- Avoid selling bonds to pay down debt.
BNP Advocates for Needed Action
Since the pandemic began, the BNP has been urging state leaders to act to prevent employers from being stuck with UI rate spikes.
The BNP successfully advocated for the experience rating freeze legislation in March.
The BNP has urged the Governor to utilize the windfall of cash it received through the American Rescue Plan to pay back its federal debt.
In her welcome letter to Gov. Hochul, President & CEO Dottie Gallagher highlighted this issue and urged Hochul to prioritize it in her first 100 days in office. The BNP also sent letters to both the Cuomo and Hochul administrations, explaining this issue and urging them to use the state’s American Rescue Plan aid to pay down the UI debt balance, as the Comptroller would later recommend.