New York's economic slowdown this year will trigger an increase in state unemployment insurance (UI) taxes in 2002, Rich Schwarz, The Council's tax specialist, has projected.

As of Sept. 7, New York State employers had paid $1.741 billion in state taxes into the state's UI fund, a slight increase over the $1.715 billion paid during the same period the previous year, Schwarz said.

But during the same period this year, benefits paid out from the fund totaled $1.717 billion, a 40 percent increase over the $1.216 billion in benefits paid during the same period in 2000, he said.

New York's main UI tax is based on the amount of money in the state UI fund. Tax increases or decreases are triggered automatically if the fund goes below or above certain statutory thresholds on Dec. 31 of each year. UI taxes are paid fully by private-sector employers.

Based on a decline in the fund balance from about $1.3 billion as of Sept. 8, 2000, to $1.2 billion as of Sept. 7, 2001, Schwarz is projecting an automatic increase of in UI tax rates of .4 percent. That increase would cost employers $34 for each employee who earns at least $8,500 in annual compensation, he added.

This reduction in the reserve developed before the Sept. 11 terrorism. Schwarz noted that any increase in unemployment insurance claims stemming from the attacks is unlikely to push the fund balance to the next threshold at which an even higher increase would take effect.

An employer's actual UI taxes also reflect its experience with the system - that is, its record of laying off employees who then receive UI benefits. The more frequently an employer's workers receive benefits, the higher its actual payments will be.

Private-sector, for-profit employers are also required to pay a subsidiary tax to offset shortfalls in payments to the fund from employers and sectors that, for various reasons, pay less in UI taxes than their employees collect in benefits.

One unknown is how requested federal aid to New York in the wake of the terrorism will affect the fund.

The Council has urged the federal government to fund any WTC-related UI claims. And the state Department of Labor has also requested federal aid to offset employers WTC-related UI costs, and has estimated the need at $260 million.