Fund is robust thanks to a series of reforms halting budget raids that had stripped it in the years before the Great Recession
If the ongoing response to the novel coronavirus outbreak triggers a recession, as many economists fear, it’s at least coming at a time when the state fund for unemployment benefits has been restored to relatively good health.
The Great Recession ravaged New Jersey’s Unemployment Insurance Trust Fund over a decade ago, and state officials were forced to borrow from the federal government just to ensure jobless benefits could be paid out throughout the downturn.
But heading into what could be a new recession amid a series of “social-distancing” measures to help stop the spread of COVID-19 — including an order to shut down all nonessential business activities across New Jersey — there was a total of $2.4 billion in the trust fund as of the beginning of this week, according to the Department of Labor and Workforce Development.
That’s a lot more than even the $1.3 billion that Gov. Phil Murphy and lawmakers set aside as reserves for the entire state budget in the fiscal year 2020 spending bill that the governor signed in late June. It’s also a testament to a series of reforms enacted about a decade ago that now protects the fund against the type of budget raids that took place before the Great Recession that left it in a weakened state before the last downturn.
Fifteen years of raids
Created in 1935, the state’s unemployment fund is supposed to ensure that state government can provide jobless benefits to laid-off workers even during recessions by routinely setting aside money that’s collected through payroll taxes levied on both employers and employees.
But nearly $5 billion was raided from the unemployment fund by governors and lawmakers — from both major political parties — during the 15 years that preceded the Great Recession. That and other fiscal stunts left the fund ill-equipped to handle the surge in demand for benefits that arose a little over a decade ago as the worst effects of the deep recession took hold.
Eventually, the fund plummeted into deficit, and New Jersey, like dozens of other states, was forced to borrow from the federal government just to keep the account solvent.
A hike in the payroll taxes levied on employers was also triggered to ensure benefits were paid even as businesses themselves were struggling through the recession. The fund collects contributions from employees at a fixed rate, but the rates levied on employers can rise and fall based, in part, on the overall health of the fund.
Legislation signed by then-Gov. Chris Christie in 2010 set up a bipartisan task force of lawmakers to figure out ways to restore the fund to solvency. New Jersey voters were also asked to play a role, and they overwhelmingly approved a ballot question amending the state constitution to protect the unemployment account against future raids.
A return to black figures
In the wake of those reforms, the trust fund was able to slowly rebuild its balance while also allowing for some $2 billion in federal funding that preserved the unemployment account during the Great Recession to be repaid in full. And as the balance was further restored, a reduction of the payroll tax for employers was also allowed, providing New Jersey businesses with a new source of tax relief.
How much the fund and its balances will be tested by the as-yet unfathomed economic fallout from the coronavirus outbreak remains to be seen. Likewise, how far the $2.4 billion balance can be stretched before new employer tax hikes would be triggered will depend largely on how many job losses the state suffers in the coming weeks and possibly months.
Earlier this week, state labor officials said they began seeing an uptick in the new filings for unemployment benefits during the week that ended on March 14, when they tracked a 20.6% year-over-year increase compared to the same week in 2019.
New figures for the seven days that ended on March 21 will be available later this week, but another surge is expected after at least 15,000 people tried to apply for benefits in just one night last week. A total of 9,467 filed for new benefits during the entire preceding week, officials said.
Other COVID-19 steps
To help preserve the fiscal health of the state and backstop the $1.3 billion in total reserves, the Murphy administration has frozen nearly $1 billion in so-called discretionary spending for FY2020, including $142 million in funding for Homestead property tax relief credits that were supposed to be paid out in May.
During his daily media briefing on the coronavirus Tuesday, Murphy said he expects the federal government may also have to play a role in the coming months to help backstop state unemployment benefits as the pace of joblessness picks up nationally.
The governor also pointed to a new website the state has created to link New Jersey employers who have job openings as a result of the coronavirus with residents who are currently seeking employment. That site is https://jobs.covid19.nj.gov/.
Meanwhile, state lawmakers last week sent Murphy a bill as part of a bigger coronavirus economic-relief effort that would carve out $20 million in state funding to help workers recoup “actual lost wages” if they’ve been missing work due to the coronavirus outbreak, and also to help employers cover the wages for any quarantined workers.