In-the-Black Unemployment Trust Fund Means $200 Million Cut in Payroll Taxes

Projections show fund on track to reach $1 billion balance, thanks to anti-fraud measures, constitutional check against diversions

New Jersey businesses will get a tax cut totaling $200 million later this year, and it’s due to the improving condition of the state fund that covers unemployment benefits, which not too long ago was one of the state’s biggest fiscal nightmares.

New projections show New Jersey’s Unemployment Insurance Trust Fund is building up a $1 billion balance thanks in part to anti-fraud efforts and a strong constitutional protection against diversions. That surplus will allow for an easing of the payroll taxes that are levied on businesses to help sustain the unemployment benefits paid to residents who are looking for work.

Gov. Chris Christie delivered the good news yesterday during a press conference that was held at JPMorgan Chase Bank’s corporate center in Jersey City. The tax cut averaging roughly $48 per employee will begin July 1, and it’s the first of its kind since 1998.

“Our job is to make it easier and more affordable to live and work here, not more expensive and more burdensome,” Christie said. “We want you to be able to support your families, that’s been our priority for the last six and half years.”

The news of the pending tax cut drew praise from business-lobbying groups, who said it would likely spur investment and possibly more hiring. And state lawmakers who spearheaded a bipartisan effort to repair the fund also welcomed the tax cut yesterday.

“This is good news for businesses and the state,” said Sen. Fred Madden (D-Gloucester).

The unemployment fund, created in 1935, is supposed to ensure that the state can afford to provide unemployment benefits even during recessions by setting aside money that’s collected on a regular basis from taxes on employers and employees.

But nearly $5 billion was raided from New Jersey’s fund by governors and lawmakers from both political parties during the 15 years that preceded the Great Recession. That left the fund ill-equipped to handle the surge in demand for unemployment benefits as the state’s jobless rate spiked to 10 percent in 2010, around the same time Christie took office.

A hike in payroll taxes was also triggered, and New Jersey, like dozens of other states, was forced to borrow roughly $2 billion from the federal government just to keep the unemployment fund solvent. In all, 30 states were forced to borrow money from the federal government to keep pace with the demand for unemployment benefits during the recession, according to data collected by ProPublica.

But an improving state economy has helped to ease that demand in New Jersey over the past three years. The state’s unemployment rate is now 4.3 percent, and New Jersey’s jobless rate has dropped by a full three percentage points since 2013.

[related]New Jersey tax collections have also improved, with Christie predicting revenues will grow to nearly $35 billion during the fiscal year that begins on July 1. By contrast, spending during his first year in office totaled less than $30 billion.

Legislation signed by Christie in 2010 set up a bipartisan task force of lawmakers to evaluate the fund and figure out ways to restore it to solvency.

New Jersey voters were also asked to play a role in fixing the fund, with a ballot question seeking to amend the state constitution to protect the unemployment account against future raids going before voters in 2010. It was overwhelmingly approved.

Christie yesterday also credited several anti-fraud initiatives that his administration has enacted since he took office for helping to keep the fund from being drained again. Nearly $550 million has been saved by the Department of Labor and Workforce Development by comparing new hire lists to current unemployment rolls. Another $100 million was saved by checking for claims filed online by individuals who aren’t New Jersey residents.

Harold Wirths, the state labor commissioner, said without those changes that money “would be out the door.”

“The taxpayers should be quite angry that these things weren’t implemented sooner,” said Wirths, who’s led the department since the beginning of Christie’s tenure.

Without the raids and the fraud, the state was able to pay back all of the money borrowed from the federal government by May 2014. And now the fund is in good enough shape to ease the taxes levied on businesses, Wirths told reporters following the press conference.

“This positive development means employers will pay less into the fund and will instead invest more in their businesses and in New Jersey’s economic growth,” said Tom Bracken, president of the New Jersey Chamber of Commerce.

“That’s money that is being reinvested in creating new jobs and building New Jersey’s economy,” said Michele Siekerka, president of the New Jersey Business & Industry Association.

Lawmakers who served on the bipartisan task force also praised the fund’s restored health and the tax cut it is making possible.

“To go from a $2.1 billion deficit to a $1 billion balance in a few short years is a testament to the efforts of the Legislature and the Christie administration to impose the fiscal discipline needed to restore New Jersey’s Unemployment Insurance Trust Fund to solvency,” said Sen. Steven Oroho (R-Sussex).

“The steps we took allowed us to stave off debilitating tax hikes on businesses, and to repay our debt to the federal government while ensuring residents continued to receive critical jobless benefits,” Madden said. “Because of this work, we are now able to provide a break to employers.”

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