Gov. Phil Murphy’s administration is preparing to borrow nearly $2 billion in federal funding to ensure all out-of-work New Jersey residents will continue to receive unemployment benefits during the ongoing pandemic.
The borrowing will backstop a state unemployment fund that has already distributed more than $6 billion in state and federal funds in recent weeks to jobless residents.
The Murphy administration is planning to submit an application for a federal loan by the end of the month, based on projections for what will be needed to sustain unemployed residents through the end of October, said Angela Delli-Santi, spokeswoman for the state Department of Labor and Workforce Development.
Since the pandemic took hold several months ago and statewide shutdown orders were issued to stop its spread, more than 1.2 million residents filed for unemployment benefits between mid-March and early June. That’s by far the largest number of claimants the department has ever served in such a short time, according to labor officials.
Digging into backlogged payments
The Murphy administration has also struggled to handle backlogged benefit payments since the surge in claims has strained staffing and the state’s outdated application-processing technology.
The need to request funding from the federal government to ensure the unemployment fund remains solvent was first revealed by state Labor Commissioner Robert Asaro-Angelo during a recent media briefing in Trenton.
Established in 1935, New Jersey’s Unemployment Insurance Trust Fund is set up to ensure that the state government can provide jobless benefits to laid-off workers even during recessions by setting aside money that’s collected through payroll taxes levied on both employers and employees. The trust fund is separate from the state budget, and its revenues are constitutionally dedicated to funding unemployment benefits.
Although the fund went broke amid the crush of unemployment filings during the 2007-2009 Great Recession, a positive balance was eventually restored, and New Jersey headed into the downturn caused by the novel coronavirus outbreak with more than $2 billion available to fund jobless benefits.
But since the onset of the pandemic in mid-March, the state has paid out more than $6 billion in unemployment benefits to New Jersey residents who’ve filed claims for assistance, according to the most recent Department of Labor and Workforce Development data. The total includes more than $2 billion in state-funded payments.
Covering claims in coming months
The unemployment fund had a balance of $1.5 billion as of the end of last week, Delli-Santi said. But to ensure that benefits can continue to be provided uninterrupted, the state is planning to submit a request to the federal government by a July 1 deadline for a total of $1.7 billion to cover the months of August, September and October, she said.
The federal funding is provided without interest through the end of the calendar year similar to a line of credit where the state can draw down funds on an as-needed basis, Delli-Santi said.
Unlike the emergency borrowing proposal that Murphy has been pressing lawmakers to approve to help sustain the state budget during the pandemic, the loan for the unemployment fund does not have to be to approved by the Legislature. The funding can be sought with Murphy’s authorization in three-month increments, and will be paid off in the future with regular contributions, Delli-Santi said.
“Future borrowing needs will be based on how the pandemic progresses or recedes, and how the economy is affected,” she said. “If workers return to work and businesses continue to reopen, obviously that will mean less stress on the UI Trust Fund.”
New Jersey last borrowed money to prop up its unemployment fund in the wake of the 2007-2009 recession, drawing down $1.75 billion from the federal government in 2009. A series of reforms were enacted in the ensuing years, including a successful push to constitutionally protect the fund from budget raids that were routinely authorized by prior governors and lawmakers from both political parties in the years preceding the Great Recession.
Many other states have already had to tap federal funding to cover unemployment benefits during the pandemic. New Jersey, however, headed into the current downturn with one of the nation’s more robust unemployment funds.
“Luckily, we’ve been in good shape for a long time,” Asaro-Angelo said during the media briefing in Trenton last week.
Employer payroll contributions will remain stable throughout fiscal year 2021, which runs through June 2021. But no decision has been made yet about fiscal 2022, which begins next July, Dell-Santi said.