ALBANY, NY | The Fiscal Policy Institute today released a new report by Emily Eisner, Chief Economist, on the urgent need to reform New York State’s unemployment insurance system.

FPI Recommendation

• New York State should immediately reform its Unemployment Insurance (UI) system to prepare for a national recession by:
  • paying down the UI trust fund debt and restoring the trust to solvency;
  • raising the benefit to its statutory level for 2025 of 48 percent of the average weekly wage; and
  • broadening the UI tax base to cover all wages at a rate of 1-1.6 percent to set the trust on a path to long-term solvency.

Key Findings

• Unemployment insurance stabilizes the state economy during economic downturns, but New York’s UI system has been insolvent for decades and UI benefits are inadequate to keep workers out of poverty.
• If a recession were to occur nation-wide, the unemployment rate in New York State could rise to between 8% and 12% (between 850,000 and 1.2 million individuals unemployed at the peak of a future recession).
• The average weekly benefit currently paid to UI recipients is $300 (equivalent to $1290/month), below the federal poverty threshold for a single adult.
• The maximum weekly benefit has been frozen since 2019 at $504 per week, even though it was set under state law to increase to $843 in 2025. This benefit freeze is triggered by the State UI trust’s $6.4 billion debt to the federal government from increased claims during the Covid pandemic.
• Unemployed workers have lost out on $8.8 billion in aggregate benefits since 2019 due to a freeze in the UI benefit level at a weekly maximum of $504 (now worth $424 after adjusting for inflation).

Introduction

UI is an essential component of the social safety net in the Unites States and acts as an important  stabilizer during economic downturns by providing temporary income to those who have faced lay-offs or joblessness through no fault of their own (i.e. not due to poor performance or a voluntary departure). The State must urgently prepare to meet rising unemployment claims in light of current federal workforce layoffs, impending federal spending cuts (which will impact state and local public employees), and the economic turmoil likely to result from the new Trump administration’s policy agenda.

However, the State’s UI program currently holds a debt of $6.4 billion with the federal government, which has frozen the UI benefit (as required under state law) since the start of the Covid-19 pandemic; the maximum benefit has been frozen at $504 per week—the equivalent of $26,210 per year and less than the minimum wage—since 2019 while the cost of living has increased dramatically over the same time period. This $6.4 billion debt is now at the center of one of this year’s major budget debates.

Business advocates point out that the debt, if left unpaid, will result in higher tax rates on employers, while worker advocates and organized labor are focused on raising the benefit to ensure economic security. Thus, both groups have an interest in paying off the federal debt. The Governor proposed making a $165 million interest payment on the debt but had no plan to accelerate paying back the debt principle. The Assembly counter-proposed a payment of $7 billion (as the $6.4 billion debt would have to be paid down and additional funds contributed to the trust to restore solvency) to the federal government that would eliminate the outstanding UI trust fund debt, protect businesses from any tax increases, and allow for the UI benefit to increase.

Given impending economic turmoil, State policymakers must prioritize benefit adequacy to protect New Yorkers and to protect the state economy from a downward spiral. Paying off the debt may be a necessary step to quickly un-freeze the benefit, and policymakers have a few options for how to expediently pay off the debt either through the use of state reserves, repurposing the “inflation refund,” or imposing a surtax on employers. But, without more comprehensive funding reform, the program may quickly fall back into insolvency, causing the benefit to freeze again.

To fully ensure the long-term solvency of the system, the State will need to reform the UI contribution funding mechanism. Currently, UI contributions are paid by employers on a small share of wages at a relatively high tax rate, which disproportionately burdens employers of lower wage workers and results in artificially low contributions from the employers of higher wage worker. A better UI financing scheme would follow conventional tax policy logic by broadening the tax base to cover all wages while lowering the rate, thereby increasing annual revenue to a level adequate for trust solvency while more fairly distributing the tax burden among businesses.

This brief discusses the heightened risk of recession and motivates the need for UI reform in the near-term. The brief then discusses the four major priorities regarding unemployment insurance this year: 1) increasing the weekly benefit received by unemployed workers, 2) reforming the UI tax to achieve solvency, 3) expanding UI to cover all workers, and 4) options for paying off the $6.4 billion owed to the federal government.