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NY State jobless fund $2B in debt to U.S.

New York State is going in the red

New York State is going in the red paying unemployment benefits. The state, and several other states, are borrowing from the federal government to keepy paying benefits. Meanwhile, many still search for jobs. (March 2009) Credit: AP File

New York State's unemployment compensation fund is deeply in debt to the federal government - with no end to the red ink in sight soon.

The fund ended 2009 owing more than $2 billion to the federal government after New York's own fund ran dry in midyear, a state Labor Department official said Wednesday.

"We've been in a negative all year as result of the economy and unemployment being at such high levels," said Leo Rosales, a department spokesman.

"We've been paying out benefits in the negative and as of Dec. 30 we are $2.1 billion in the red," Rosales said. The state was able to pay the first $3 billion of the year on its own, then turned to the federal government for the rest of the approximately $5 billion in jobless benefits paid out in 2009.

Many other states are also in debt to the U.S. Department of Labor to pay unemployment benefits. The current recession, along with new benefit extensions for job seekers that can last as long as 99 weeks, have fueled the overruns.

New Jersey, Connecticut and more than two dozen other states have also depleted their funds and have turned to the U.S. government for loans, according to U.S. Department of Labor data. New Jersey's state unemployment fund is running short by more than $2 billion, according to a research arm of the state Legislature.

In some states there's talk of increasing taxes to pay back the borrowed money, but there's no major effort to do so in New York at the moment, Rosales said.

One provision of President Barack Obama's economic stimulus package gave extra help to the states by eliminating interest charges on the jobless fund loans. The unemployment compensation fund will pay back the $2.1-billion federal debt - which is expected to grow even larger in 2010 - with income from future payroll taxes, Rosales said.

New York State levies unemployment tax on the first $7,500 of workers' income, while some other states tax higher amounts, with some states taxing the first $20,000 or more of income.

The practice of borrowing from the federal government is cyclic depending on the regional and national economic ups and downs. The borrowing option is a built-in safety net for state unemployment compensation funds, which are normally funded from a tax on workers' paychecks and on businesses.

Eligible out-of-work claimants "will get your benefits regardless of how much in the red we are," because the federal government guarantees the benefits, Rosales said. Workers are now eligible for up to 99 weeks of benefits, with New York's maximum weekly payout set at $405 a week.

About 600,000 New Yorkers are now collecting unemployment benefits, about four times the average rate in recent non-recession years, when payroll taxes were enough to run the program in the black.

The state Labor Department has reported that New York's unemployment rate fell to 8.6 percent in November, from the previous month's 9 percent. The number of unemployed state residents - including those not eligible for benefits - also fell slightly, from 871,000 in October to 833,900 in November. December numbers are not yet available.

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