Can State, Local Governments Save Hundreds of Millions by Furloughing Workers?

Proposed bipartisan plan would save money by furloughing workers while ensuring they qualify for enhanced federal unemployment benefits
Senate President Steve Sweeney

Two New Jersey lawmakers are proposing a new way for state and local government to save millions of dollars by partially furloughing workers during the coronavirus pandemic.

At the same time, their plan seeks to ease the blow on those furloughed workers by ensuring they can qualify for enhanced federal unemployment benefits even as they miss time at work.

New Jersey appears to be the first state to consider this approach to COVID-19 furloughs.

The proposal detailed in draft legislation provided to NJ Spotlight on Monday is a twist on the state’s existing “job-sharing” law, which is designed to reduce the need for mass layoffs during times of economic downturn by providing employers with incentives to only reduce employee hours.

It also relies on beefed-up unemployment checks that are being funded by the federal government through the end of July under the $2 trillion stimulus bill that was enacted by the Congress late last month in response to the pandemic.

The projected savings

The legislation is sponsored by Sens. Steve Sweeney (D-Gloucester), Nellie Pou (D-Passaic) and Steve Oroho (R-Sussex), and savings estimates range from $150 million for the state to potentially three times that amount combined for local governments, depending on how many would participate.

“The purpose of this bill is to facilitate the providing of the maximum possible benefits for employees and savings for employers in the State from the federal financing of unemployment benefits,” the draft legislation said.

The bill’s pending introduction comes as Gov. Phil Murphy has repeatedly warned that New Jersey’s revenue projections are taking a tumble as COVID-19 infections continue to increase, and as the state continues to adhere to strict social-distancing measures in an effort to prevent further spread of the virus. They include closing many businesses that have been deemed “nonessential” by the governor.

Murphy, a first-term Democrat, has in recent days called for direct financial aid from the federal government to offset projected revenue losses, and he has also submitted to legislative leaders draft legislation that calls for the state to attempt to use emergency bonding powers that are written into the state Constitution to help fortify coffers during times of war or natural disaster.

The Murphy administration has yet to publicly detail how much lost revenue it is expecting through the end of the current fiscal “year,” which has been extended on emergency basis by three months to the end of September.

COVID-19 losses, a moving target

In a recent bond disclosure, the administration said only that it would be “some time before the State is able to fully assess how the varying impacts of COVID-19 will impact its revenues and expenditures, both for this fiscal year and for future fiscal years.”

The Murphy administration indicated in the same bond disclosure that it has extended the term of a $1.5 billion short-term borrowing issue to the end of September. The disclosure also suggested the administration is seeking legislative approval for as much as $5 billion in an emergency bonding in response to the pandemic.

While Assembly Speaker Craig Coughlin (D-Middlesex) has indicated a willingness to work with the Murphy administration on its borrowing proposal, Sweeney has yet to go that far. Instead, he’s announced the formation of a new bipartisan working group to study the economic fallout from the coronavirus led by Sens. Paul Sarlo (D-Bergen) and Steve Oroho (R-Sussex).

Sweeney is also co-sponsoring the bipartisan measure with Pou and Oroho that would seek to generate as much as $750 million in savings for state, local and county governments in New Jersey by allowing for the temporary furloughing of some public-sector employees to occur through the end of July. The sponsors’ savings estimates are based on an assumption that one-quarter of the 400,000 workers who are employed by state, local and county governments in New Jersey at various pay grades will end up being furloughed for three days each week over a three-month period.

Thanks to the provisions of the state’s 2011 job-sharing law — which also applies to private-sector employers — temporarily furloughed employees can still qualify for unemployment benefits under plans approved by the state. Under the draft legislation, furloughed public employees would be able to get about the same, or in some cases, better pay even as they miss time at work during the pandemic, thanks to the federal stimulus bill, which is funding enhanced unemployment benefits worth an extra $600 a week for many workers through the end of July.

Furloughed workers would also still qualify for full benefits, and their employers may see a benefit in the form of lower unemployment taxes, under the state law. At the same time, the sponsors are proposing protections for workers to ensure all pension credits and seniority rights continue to accrue as they would under more normal circumstances, according to the draft legislation.

While most of the savings would accrue to local and county governments, the $150 million in estimated savings for the state is roughly equal to the amount of funding for Homestead property-tax relief benefits that were due to go out in May before being pulled back by the Murphy administration as part of a nearly $1 billion spending freeze announced late last month.

Asked for comment on the draft legislation on Monday, Murphy press secretary Alyana Alfaro Post said, “While the governor’s office does not comment on specific or pending legislation, Gov. Murphy remains committed to ensuring that as many New Jerseyans as possible remain gainfully employed as we combat the COVID-19 pandemic.”