Wed 2 Apr 2008
From the APP:
Corzine wants $260M to replenish jobless trust fund
Gov. Corzine said Tuesday he wants to move $260 million from the current state budget to shore up the unemployment trust fund and avoid a trigger that would mean higher payroll taxes for employers.
The decision came after state projections showed the fund that pays unemployment benefits might not have enough money to meet its obligations.
“This really was brewing,” said David J. Socolow, commissioner of the state Department of Labor and Workforce Development. “We’ve been right on the bubble of this happening for years.”
Unemployment benefits are given to workers who lose their jobs through no fault of their own, and they are funded by taxes both on employers and workers. The state is required by law to maintain a balance that ensures the program will be adequately financed.
But lawmakers diverted $4.7 billion from the fund for other projects for 14 years until Corzine took office and ended the practice. The program is under more strain, given the shaky economy; the state’s jobless rate rose to 4.8 percent in February from 4.5 percent in January.
The result: The unemployment fund on March 31 was projected to have $999 million for the next fiscal year, less than the $1.04 billion it needed to be considered financially healthy. That would automatically trigger a hike on employers’ payroll taxes that would generate another $350 million, Corzine officials said.
Employers’ tax rates for the unemployment program depend on how often their workers use it; an employer with heavy turnover pays more than an employer with a relatively stable work force. If the trigger were to go into effect, an employer paying a 1.7 percent tax rate, for example, would see it rise to 2.1 percent. Workers’ taxes would remain the same.
The governor “will not burden employers with taking care of an obligation that is not their fault,” Corzine spokesman Jim Gardner said.
Corzine’s solution is to change the date on which the fund balance is calculated from March 31 to June 30 for this year, and to transfer $260 million from the state’s current budget surplus to the unemployment plan. The plan first needs the Legislature’s approval.
From the Star Ledger:
Jobless benefits in a bind
Gov. Jon Corzine yesterday proposed an emergency $260 million infusion into the fund that bankrolls benefit checks for laid-off workers, as rising joblessness and years of state budget raids pushed the fund toward insolvency.
Corzine’s bailout, which must be approved by the Legislature, would benefit employers, who otherwise would face an automatic $350 million tax hike later this year to replenish the state’s Unemployment Insurance Trust Fund.
“We should avoid imposing a $350 million tax increase on employers during this national recession,” Corzine said in a statement announcing the bailout plan yesterday. “I am asking for the Legislature’s help to address this problem now to prevent this tax increase, so that businesses will have a stable and certain tax environment for economic growth in New Jersey.”
The crisis facing the trust fund is the latest dilemma to emerge as state officials confront the fallout from a slowing economy and years of state budgets that were balanced through borrowing or the diversion of billions of dollars in funds earmarked for retirement benefits, transportation or other long-term investments.
The unemployment fund had a balance of $3 billion less than five years ago, but its balance has dipped below $350 million, largely because lawmakers diverted billions of dollars from it to pay for the state’s Charity Care hospital subsidies.
The fund pays out about $2.1 billion a year in benefits to laid-off workers. That is about $100 million more than it takes in from a payroll tax paid by employers and workers. The funds on hand would cover about two months worth of benefits.
“Because of 14 years of diversions, this fund is running essentially on fumes,” said state Labor Commissioner David Socolow.
The state’s troubled economy also threatens to pinch the fund. Through February, the state lost 10,300 jobs this year, according to the state Labor Department. New Jersey’s unemployment rate is running at 4.8 percent.
Under state law, employers would face a higher payroll-tax rate July 1 if the value of the fund drops below 1.4 percent of the total payroll of the employees it covers. Socolow said the funds would miss that threshold by at least $25 million, if the calculations were made as scheduled effective March 31.
To head off the tax hike, Corzine proposed depositing $260 million into the fund and postponing for three months the date on which the calculations are made to determine whether a higher tax is needed to keep the fund solvent.
This one is sleight of hand, but not without merit. If, as so many people here clearly believe, our state government disadvantages our businesses, then you have to believe this makes sense.
Even if you don’t believe that, in the current economic climate, it is pretty standard (i.e. Keynesian) economics to do something like this.
More like “kicking the can down the road”