Despite money in bank, NJ now pays interest on unemployment loan
TRENTON – Not only will New Jersey employers pay higher unemployment taxes starting next month, but now the state is paying interest to the federal government on the loan it is carrying to pay jobless benefits.
The advance from the U.S. Labor Department had been interest-free since March 2020, but that grace period ended Monday. The size of the loan can vary daily as it operates like a line of credit, depending on the balance of the state’s unemployment fund, but was over $217 million and rising as of Tuesday.
In all, 10 states and the Virgin Islands owe $44.7 billion. Nevada and Ohio paid off their balances last week to avoid paying the newly applicable interest rate of nearly 2.3%.
The state has more than $2 billion in a new debt avoidance fund, as well as more than $4 billion in federal coronavirus funding available, but Gov. Phil Murphy said it hasn’t yet been decided how that funding will be used.
“The one thing we want to do is make sure we have got the highest rate of return on whatever, wherever we deploy our money,” Murphy said. “So, my guess is that we’re looking at the interest vs. the return we could get on deploying that money elsewhere.”
Sen. Declan O’Scanlon, R-Monmouth, said Republican lawmakers have been pushing since the spring for the state to replenish the unemployment fund to avoid a roughly $250 million tax hike on employers – which already was a compromise enacted into law that avoided a more than $900 million increase.
“So now, on that, additionally it will grow aside from the natural growth that is going to happen because of the state of our economy, it will compound with interest now. And that’s a problem and again should have been completely avoided,” O’Scanlon said.
O’Scanlon said employers “are due to be walloped” by a 20% increase in payroll taxes that will increase again in 2022 and 2023 unless the state intervenes. The total increase on businesses in those three years combined is projected to total $1.5 billion.
“It is a horrendous punch in the gut to these employers that are already struggling. We need them to create these jobs. We need people to get back to work. We need New Jersey’s economy humming,” he said. “To inflict a tax like this now on them, when we have billions of federal dollars intended for relief exactly like this, is malfeasance on the part of Gov. Murphy and our state government.”
O’Scanlon said the state could have used CARES Act funding, American Rescue Plan funding, money from the general state budget, money from the debt avoidance fund or other creative ways to avoid the tax hike on businesses.
“There were a dozen ways that we could have dealt with this. And should have. And should still,” said O’Scanlon.
All the Republican lawmakers have signed a petition that would require a special session of the Legislature to address the payroll tax – but they account for less than 40% of the seats, a majority is needed, and no Democrats have signed on.
“Democrats despite all their lip service, not one of them has signed it, which is a clear indication that they really don’t give a damn about New Jersey’s businesses and jobs and New Jersey’s overall economy,” O’Scanlon said.