NJ’s Unemployment Trust Fund Bounces Back, with Big Savings for Business

The fund has been replenished since a 2010 constitutional amendment prohibited it from being raided for other purposes. Other revenue streams are not as protected

Credit: NJTV News
Robert Asaro-Angelo, right, Department of Labor and Workforce Development Commissioner
Once a major fiscal nightmare, the condition of New Jersey’s unemployment trust fund has so improved in recent years that it has now become a good source of tax relief for the state’s business community.

In turn, the tax relief is leading to more hiring and investment in New Jersey, lawmakers and business leaders said.

Companies that regularly pay into the trust fund are saving $263 million this fiscal year thanks to the fund’s rebound, and another reduction worth an estimated $200 million could be coming in FY2020 if current economic conditions continue.

That “great news” for the business community was delivered by Department of Labor and Workforce Development Commissioner Robert Asaro-Angelo yesterday during testimony before the Senate Budget and Appropriations Committee.

“Potentially, there is even better news on the horizon,” Asaro-Angelo said, referring to the likelihood of another tax cut in FY2020.

Credit: NJTV News
Sen. Paul Sarlo (D-Bergen)
“All the years I’ve been here, I don’t remember that fund being as healthy as it is,” said committee chair Paul Sarlo (D-Bergen).

The fund’s turnaround could serve as a model for a state that continues to struggle with other big fiscal challenges.

Created in 1935, the trust fund is supposed to ensure that the state can afford to provide unemployment 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 left the fund ill-equipped to handle the surge in demand for benefits that arose about a decade ago as the worst effects of the recession took hold. As the fund plummeted into deficit, New Jersey, like dozens of other states, was forced to borrow from the federal government just to keep the unemployment account solvent. A hike in the payroll taxes levied on employers was also triggered to ensure benefits were funded.

Thanks to the state’s improving economy, the demand for jobless benefits in New Jersey has declined in recent years. The unemployment rate, which reached over 10 percent during the worst part of the recession, dropped to 4 percent this year.

The continued low unemployment has helped ease the draw on benefits, allowing the fund’s balance to rise to $2.5 billion this year; the balance is projected to reach $3 billion by the time FY2019 closes at the end of June, according to an analysis prepared by the nonpartisan Office of Legislative Services that was released prior to yesterday’s meeting. The loan of roughly $2 billion from the federal government has already been paid off in full.

More savings next year?

While contributions from employees are fixed, the trust fund’s architecture calls for the rates levied on businesses to rise and fall based, in part, on the overall health of the fund. This year’s savings come as the business-contribution rates were moved into a lower category known as “column B.” According to estimates provided by department officials yesterday, the savings realized by businesses this fiscal year have been worth as much as $152.03 for every employee. And if current economic conditions continue, business contributions are expected to move down another notch to “column A,” which is the lowest category, in FY2020, department officials said.

“At a time of continuing rising business costs in the state, we’re pleased to see this savings,” said Michael Wallace, vice president of government affairs for the New Jersey Business & Industry Association.

“Employers will reinvest this savings back into their business to help accommodate for the overall increase in the cost of doing business in New Jersey,” he went on to say.

Also playing a significant role in the restored solvency of the trust fund has been the fact that the fund itself is no longer suffering from regular raids during the annual state budget process. That comes after voters passed a constitutional amendment in 2010 that now prohibits any diversions from the trust fund.

Sen. Steve Oroho, one of the lawmakers who served on a special task force that was impaneled a decade ago to address the fund’s fiscal issues, yesterday credited that reform with putting the fund back on track. On the news that the rising surplus is now triggering tax relief for the business community, Oroho (R-Sussex), said, “People don’t realize how important that is … Now they can reinvest that (money) and have maybe even more employees.”

Lawmakers often get around the guardrails

While the trust fund now has strong constitutional protections, it serves as a notable exception. Many of New Jersey’s other dedicated revenue streams only have statutory guardrails that lawmakers often find creative ways of getting around.

For example, money raised from a tax on utility bills that is supposed to go into the state’s Clean Energy Fund has been routinely raided for other purposes, including to cover utility costs at New Jersey Transit.

Gov. Phil Murphy, a first-term Democrat, has been trying to roll back some of the diversions, including from the Clean Energy Fund. Murphy has also made replenishing the state budget’s general surplus account a top priority. The balance of that account has now increased to over $1 billion after getting as low as $300 million during the recession. But it’s already being eyed by some lawmakers for potential raids as the ongoing economic boom has made it easy to overlook lessons learned during the recession.

Asked yesterday if the unemployment fund’s success story could serve as an example for the state to follow in other areas of the budget, Sarlo gave credit to Murphy for his work at the reducing fund raids and other “one-shot” revenue measures.

“The elimination of one-shots and diversions, of course, are good, sound budgeting practices,” Sarlo said.

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