ISSUE IN BRIEF: Unemployment Insurance Trust Fund
Private sector, for-profit employers in New York pay both a Federal UC Tax and a (New York) State UC Tax to support the Unemployment Compensation system. UC taxes are the sole funding for New York's Unemployment Compensation Trust Fund. The rate of State UC Tax paid is set by a series of tax rates triggered by the level of the UC Trust Fund. Since 2003 New York private sector, for-profit employers have been paying the State UC Tax under the maximum set of tax rates - as the UC Trust Fund level had fallen to a negative level due to the prolonged economic recession since 2001 exacerbated by the negative economic impact of the 9/11 terrorist attacks.
Notwithstanding the negative UC Trust Fund balance, there is no risk to payment of UC claimant benefit checks as the dual Federal/State system automatically advances Federal UC Tax funds to those states whose Funds have fallen below zero. Federal law increases the Federal UC Tax for private sector, for-profit employers in those states whose Funds are negative at the end of two consecutive calendar years. In New York - whose UC Trust Fund balance was negative on 12/31/2 and 12/31/3 - these employers had their Federal UC Tax raised by $21 per employee for 2004, payable in January 2005. The $144 million raised by the January 2005 tax is applied by the Federal government to reduce New York's outstanding Federal loan balance.
In January 2006, Federal law will increase the Federal UC Tax for private sector, for-profit employers in New York by $42 per employee for calendar year 2005. The estimated $300 million of the January 2006 tax, also, will be applied by the Federal government to reduce New York's outstanding Federal loan balance. Moreover, New York's economic picture has been improving and continues to improve. UC Trust Fund revenues totaled $2,815,476,000 in the twelve months ending September 30, 2004 while the corresponding benefit payout was $2,554,487,000. The $261 million gain in the UC Trust Fund was a dramatic ($738 million) improvement over the $477 million loss in the Fund in the twelve months ending September 30, 2003.
Economic data shows continuing strength and projections are that New York's UC Trust Fund level will be some $1 billion higher on September 30, 2006 than two years previously through a combination of two positive years of growth and the January 2005 and January 2006 Federal tax increases; accordingly, the Federal advance to New York's UC Trust Fund - which stood just shy of $700 million on 12/31/4 - will have been repaid.
Business Council Priority - The Business Council supports the above-related scenario as the most cost-effective method for employers to pay off the Federal advancement of UC funds backed by authorization:
- to bond any additional monies (up to $350 million) necessary to ensure the full payment of the federal loan throughout the period of September 30, 2005 to December 31, 2005;
- to bond any additional monies necessary to ensure full repayment of the Federal loan throughout the period of September 30, 2006 - December 31, 2006;
- to bond any additional monies (up to $350 million) necessary to ensure full repayment of any future outstanding Federal loans throughout the period of September 30 to December 31 annually should the economy worsen and the extrapolated estimates not occur. If necessary to achieve full repayment of the Federal advancement for any period from 9/30 through 12/31 annually, the bond authorization would be activated by a three-member UC Solvency panel of private sector employer representatives (recommended by private sector business associations including The Business Council) with bond payback financed by a surcharge on the experience-rated State UC Tax on private sector employers.