Calls grow for N.J. to use federal aid to replenish unemployment fund

The fund was depleted after more than a year of skyrocketing jobless claims

By: - August 17, 2021 6:46 am

Gov. Phil Murphy said the cost of extending benefits is prohibitive. (Photo by Danielle Richards for New Jersey Monitor)

A growing, bipartisan chorus of lawmakers and business groups are calling on New Jersey to use federal stimulus dollars to replenish the state’s unemployment trust fund.

The pleas for help came as the state wrestles with how to restore the fund, which lost millions as jobless claims skyrocketed during the pandemic. The fund needs a boost of just under $1 billion, one that will be phased in over three years thanks to a law signed by Gov. Phil Murphy in January.

The first phase is coming due and businesses statewide will have to fork over an additional $252 million total starting Oct. 30. New Jersey informed businesses on Friday.

“We have plenty of federal dollars to go around, and there is no reason businesses should be burdened with an unemployment tax hike when laying off employees was the only way they could stay afloat through last year’s shutdown,” state Sen. Dawn Addiego (D-Burlington) said in a statement.

Republicans were more aggressive, with state Sen. Michael Testa (R-Cumberland) calling the state’s plan a “job-killing payroll tax increase” and taking a jab at Murphy, who has been vacationing in Italy since last week.

“Increasing employer taxes 20% now was the height of bad policy and arrogance. The tax increase was avoidable. But the governor demonstrated he doesn’t care and symbolically sniveled ‘Let them eat cake’ to employers from his $10 million Italian villa,” he said.

State unemployment benefits are funded by employer-paid taxes. The rate is determined by the health of the unemployment trust fund and by the number of employees who claimed benefits after being laid off or furloughed.

Labor Department officials have said the fund was in good shape at the start of the pandemic, but has been depleted in the 18 months since.

More than 200,000 people were claiming weekly benefits at the height of the first wave of the pandemic. Since the pandemic began, more than 2 million New Jerseyans have filed claims, and the state Department of Labor has distributed $7.9 billion in state benefits.

The state unemployment rate is 7.2%, among the highest in the nation.

Businesses knew the rate hike was on the way: It was supposed to be announced July 1. But Friday’s announcement led to criticism first from Republicans, then Democrats, who say New Jersey businesses can’t afford a rate hike in their unemployment tax.

“We’ve asked to use some of those American Rescue dollars to offset this impact on New Jersey businesses, which have already suffered,” said Michele Siekerka, president of the New Jersey Business & Industry Association. “Unfortunately, to employers, more costs like this is less that they can give back to the employee or put back in their business.”

Darryl Isherwood, a senior Murphy adviser, said an infusion of money from the American Rescue Plan, signed into law by President Biden in March, would not have changed businesses’ unemployment tax rate. The funds were not distributed until May, Isherwood said, past a state budgetary deadline.

Labor Department spokeswoman Angela Delli-Santi said adjustments in the payroll tax rate are possible every year.

“Gov. Murphy signed legislation lessening the impact of unemployment tax rate increases by extending them out over three years, as opposed to a single year,” she said.

New Jersey has been in this position before. Following the Great Recession’s spike in unemployment, the state borrowed from the federal government until the trust fund reached a positive balance in 2013.

Tapping federal funds to supply unemployment

At least 30 states, led by both Democrats and Republicans, are using a portion of federal coronavirus relief aid for unemployment trust funds, according to the Associated Press. Some states are allocating millions, with Georgia topping out at $1.5 billion.

The New Jersey Legislature must approve appropriations that exceed $10 million.

Sheila Reynertson, a senior analyst with left-leaning think tank New Jersey Policy Perspective, said the state has given enough tax breaks to businesses.

“There’s a notion we’re socking it to the business community, but they’ve received plenty of tax breaks, including legislation passed in early February” allowing businesses to deduct PPP loans from taxes, a move the NJPP says will cost New Jersey $1 billion, she said.

Reynertson argued ARP money should be used for more pressing needs, like serving marginalized communities and addressing food deserts. NJPP has urged Murphy to direct federal dollars to funding transit infrastructure, expanding child care support, and investing in public education.

Businesses will face another two years of changing rates to replenish the unemployment fund. The Office of Legislative Services expects the state will need to bring in an additional $296.6 million in 2023 and another $336.4 million in 2024.

Even if New Jersey officials decline using ARP money for this year, the state has until 2024 to administer the funds. Testa said in his statement his Republican colleagues will continue advocating for this option.

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Sophie Nieto-Munoz
Sophie Nieto-Munoz

Sophie Nieto-Muñoz, a New Jersey native and former Trenton statehouse reporter for NJ.com, shined a spotlight on the state’s crumbling unemployment system and won several awards for investigative reporting from the New Jersey Press Association. She was a finalist for the Livingston Award for Young Journalists for her report on PetSmart's grooming practices, which was also recognized by the New York Press Club. Sophie speaks Spanish and is proud to connect to the Latinx community through her reporting.

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