New York State's UI Debt Continues to Hurt Businesses






The Issue

The Executive Budget for the 2021-22 fiscal year was unveiled on January 19, 2021 with the acknowledgment that the state's "reduction in force" resulted in a $10 billion debt in the state's Unemployment Insurance (UI) fund. The FY 2022 budget, when adopted, authorized $208 billion in spending - without a dollar of public funds appropriated to address the $8 billion UI debt.

33 states have devoted more than $26 billion in public funds – mainly from the federal CARES Act or ARPA – to reduce the UI tax burden on their employer community.  Without similar relief, the entire burden of the state's $8 billion UI debt will be repaid through increased federal and state payroll taxes on New York's private-sector employers.

What is Unemployment Insurance? 

  • All 50 states provide unemployment insurance (UI) benefits through a unique regulatory and financing partnership with the federal government.

  • Employers also pay federal UI taxes to finance federal oversight and provide extended benefits and state loans during significant economic downturns.

States have the ability to:

  • administer their own program (within federal guidelines)

  • set benefit levels and qualification standards

  • impose taxes on employers to finance the program and pay for program administration (only three states: Alaska, Pennsylvania, and New Jersey, require any employee contribution.)

How the Debt Started

  • In March 2020, New York ordered all non-essential businesses to "reduce their in-person workforce at any work locations by 100%," resulting in the loss of 1.6 million in-state jobs by April

  • The national unemployment rate increased to 14.7%, increasing UI claims dramatically

  • 22 states borrowed over $45 billion from the federal government to continue paying UI benefits in 2022

$9.2 Billion

borrowed by New York State - the loans peaked at $10.4 billion in March 2021



No Action Taken

  • While the debt incurred from state-mandated business shutdowns during the COVID-19 pandemic, New York has yet to provide financial assistance to the UI system

  • New York is 1 of 2 states that have outstanding federal debt related to COVID UI benefits

  • 35 states have paid off their federal advances and improved the financial stability of their UI programs using:

    • Federal COVID-relief funds from The CARES Act or American Rescue Plan Act

    • State general revenue dollars

  • California used over $2 billion in public funds to relieve its UI debt, despite having a higher total debt than New York

$25 Billion

received in CARES and ARPA funding. New York hasn't used any for UI tax relief.

The Financial Burden on Employers

  • New York's unemployment insurance system is paid through payroll taxes on employers - normally totaling $2.5 to $3 billion annually

  • These elevated state and federal payroll taxes will likely remain for the rest of this decade

$8 Billion

in federal UI debt will be paid through increased state and federal UI taxes on the business community, including annual "special assessments" to make federal interest payments - (expected to be at least $125 million in 2023). 

UI Tax Relief Options

  • Making General Fund contributions to debt repayment

  • Pay the annual federal interest payment

  • Offset the impact on employers through reimbursements or tax credits

  • Reimburse the state fund for improper and fraudulent UI benefit payments (currently charged to the fund and paid for through increased employer taxes) - estimated to be $400 million or more

We don’t expect the state to pay off the entire $8 billion federal debt. However, it's unreasonable to impose additional costs on the system with record levels of debt, and employers paying record levels of UI taxes, with proposals to increase maximum benefits or expand eligibility standards.

Legislative Options for UI Tax Relief

Pay Federal Interest – We are projecting that interest payments on New York’s outstanding federal advances could be as high as $132 million in 2023.  The state budget should include a General Fund appropriation to cover that cost and avoid another extra round of employer tax bills this fall.  Here’s our calculation.  The IRS has already set its 2023 interest rate on federal UI advances at 1.6776%.  Also, New York’s outstanding federal advance balance as of today is $7.99 billion.  Using those figures, 2023 interest would be about $132 million.  Since New York receive a significant share of its annual UI tax payments in the first quarter of the year, we expect the state Labor Department – as they did in 2022 – to  use some of that revenue to pay down the federal debt (even if we had to do subsequent addition federal borrowing), which would at least reduce the interest payment due, and the state’s interest assessment on businesses, due at the end of 2023.   With that expectation, we could see the $132 million figure go lower, provided we do not see another spike in unemployment rates.

Offset Federal Tax Increases – The federal unemployment insurance tax (or FUTA) is 6% of first $7,000 of payroll per covered employee, but most employers that pay the federal tax on time receive a credit that reduces it to 0.3% or $21 per employee.  However, the credit is reduced by 0.3% per year for employers in states with outstanding federal advances.  As result, in 2023, the FUTA tax for New York employers will be 0.9% or $63, adding an estimated $260 million in total tax levies in New York employers.  New York should include a General Fund appropriation to provide employers with an offset to this federal tax increase, which is a direct, additional cost due to our federal borrowing.

Improper Payments - The issue of unemployment insurance fraud has received significant attention given the apparent level of fraud and other overpayments during the pandemic.  While a significant share of fraudulent UI fraud seems related to the temporary, emergency, federally funded UI programs adopted to respond to the pandemic, the state Labor Department has estimated that fraudulent payments in New York’s regular, permanent, state-employer-financed UI program is up to $400 million.  Under New York State’s current Labor Law, the cost of improper unemployment insurance payments that are not recovered by the state (fraudulent or otherwise) are absorbed by the state UI system’s “general account,” and that cost is socialized across all employers through the “subsidiary” UI tax imposed under Labor Law §577.  General fund reimbursement of fraudulent payments would make sense as well, rather than having the cost of those state-approved fraudulent payments borne solely by employer through increased payroll taxes.

Paying Down the Federal Debt- Public funds can be devoted to paying down a share of the state’s now $7.9 billion federal UI advance.  We are not requesting full state repayment, but we recommend that the state make a material down payment on this federal debt in the FY 2024 budget, and that the budget include a multi-year commitment for additional payments at a level that can be accommodated in the state financial plan.  Given that the 2020 job losses that caused this borrowing were result of the state-imposed reduction in force, and not based on company actions, it makes sense for a private/public sharing of these repayment costs.

Avoid Increased Program Costs – At a time when the state’s UI system has record-levels of debt, and employers are paying record-levels of UI taxes, it makes no sense to impose additional costs on the system.  Organized labor has called for an increase in the maximum UI benefit to $700 per week.  While we do not yet have a formal estimate of the cost impact of a near $200 per week benefit hit, it would certainly add hundreds of millions in costs to a system still deeply in debt.


Get Involved!

Contact your state legislator today! Tell them to help New York State's employers.

  • Visit our advocacy campaign page and send a letter to your legislator asking them to consider UI debt relief next legislative session! Click Here