Jobless Fund Faces Shortfall

“The governor has pledged financial support to stabilize the fund,” said Jim Leonard, legislative lobbyist for the New Jersey Chamber of Commerce. “The pro-blem is how much funding will be needed? And will the state have enough money?”

If the state — struggling with its own finances — does not find the money to kick into the fund, employers would likely face a $400 million payroll tax increase in next year’s budget — which translates to nearly $100 per employee — to replenish the fund. Eighty-eight percent of the tax is paid by employers, 12 percent is paid through payroll deductions.

It’s “an unpalatable choice” for the state, said Joseph Seneca, economist at Rutgers University’s Bloustein School of Planning and Public Policy: shift money from a state budget suffering with shrinking revenues, or raise a business tax during a stormy economy.

When the Unemployment Insurance Trust Fund falls below a minimum reserve level, it automatically triggers an increase in employer taxes, according to state law.

Earlier this year, when the state’s fund dipped below the minimum level for the first time in more than a decade, the state contributed $260 million to avert a tax hike.

The move was lauded by the business community, but it was a short-term fix. “Regrettably, we will be revisiting this issue again this year,” Gov. Jon S. Corzine said last month. “And again, I hope to avoid that tax hike.”

The fund may need a larger state infusion, since more people are on the unemployment rolls, according to the New Jersey Department of Labor and Workforce Development. The unemployment rate was at 5.8 percent at the end of September, up from 4.2 percent at the beginning of the year, according to the department.

Most expect the unemployment trust fund to dip below — perhaps far below — the minimum reserve when it is calculated in February.

“Unfortunately, with Wall Street layoffs and weaknesses in the economy, we do think unemployment will go to 7 percent and beyond,” said Philip Kirschner, president of the New Jersey Business & Industry Association. “It will put a lot of stress on the fund and, as far as we can see, outstrip the money the fund has now.”

Seneca agreed unemployment will rise and the trust fund will dwindle as the economy continues to struggle through at least the first half of next year. “Probably, the worst is still ahead of us,” he said. “Though we had significant job losses in the financial sector, there is still more unwinding to do. And I expect more cutbacks in manufacturing, retail and logistics.”

The unemployment trust fund is not solely dwindling because the unemployment rate is rising. Corzine and business advocates said the fund is low because the state diverted money from it for other purposes between 1993 and 2006. The state funneled about $4.7 billion from the fund, mostly to health care for the working poor and the uninsured, according to the NJBIA.

And now business advocates say it’s the state’s responsibility to pay it back.

The state was allowed to “steal money from that fund year after year,” Leonard said, “and they have an obligation to replace the money.”

Kathleen Davis, executive vice president of the Chamber of Commerce of Southern New Jersey, said, “It’s just a shame that all those years when the fund was healthy, the money was siphoned off for other uses, and we have come to the day that we all feared — the day it will reach the trigger level for a tax increase.”

E-mail to sgoldstein@njbiz.com