LEGISLATIVE FISCAL ESTIMATE

ASSEMBLY, No. 4853

STATE OF NEW JERSEY

219th LEGISLATURE

 

DATED: NOVEMBER 2, 2020

 

 

SUMMARY

 

Synopsis:	Reduces or delays increases in employer unemployment taxes related to benefits paid during coronavirus disease 2019 pandemic state of emergency.
Type of Impact:	Multi-year decrease in revenue collections to the Unemployment Insurance Compensation Fund.   Multi-year cost savings to the State, public institutions of higher education, local governments, and school districts.
Agencies Affected:	Potentially all State entities, local governments, institutions of higher education, and school districts; Department of Labor and Workforce Development.

 

 

Office of Legislative Services Estimate
Fiscal Impact	FY 2022	FY 2023	FY 2024
Revenue Decrease- Unemployment Insurance Compensation Fund	At Least $660 Million	At Least $450 Million	At Least $230 Million
Cost Savings-State entities, Public Institutions of Higher Education, Local Governments, and School Districts	Indeterminate	Indeterminate	Indeterminate

 

                  The Office of Legislative Services (OLS) estimates that the bill will reduce revenues to the Unemployment Insurance (UI) Compensation Fund by at least $660 million in FY 2022, $450 million in FY 2023, and $230 million in FY 2024 relative to amounts that would have been collected from employers based on the fund   s reserve ratio and statutory funding formula.   Beginning in FY 2025, employer contribution rates will return to their statutory levels and remain in place until the UI fund is replenished and federal loans are repaid.

 

                  By providing that all UI benefits paid during the Covid-19 state of emergency will be excluded when calculating an individual employer   s reserve ratio, the bill will result in further, potentially significant, decreases in revenues to the UI fund on top of the amounts enumerated above.

 

                  This bill may result in cost savings to potentially all State entities, public institutions of higher education, local governments, and school districts tied to the reduced liabilities to the UI fund for those entities that choose to not make contributions to the UI fund on an annual basis but instead reimburse the UI fund for benefits paid to laid off employees.

 

 

BILL DESCRIPTION

 

        This bill, for the period of the public health emergency and state of emergency declared by the Governor on March 9, 2020, and any subsequent extensions of the emergency or state of emergency, excludes the cost of unemployment benefits to employees of an employer during that period when calculating that employer   s reserve ratio for the purposes of determining the rate of the employer   s contributions to the unemployment trust fund.

        The bill specifies that, regardless of the actual unemployment trust fund reserve ratio, unemployment contribution rates will be:

        1.       For fiscal year 2022, the rates set by column    C    of the Experience Rating Tax Table in R.S.32:21-7(c)(5)(E).

        2.       For fiscal year 2023, the rates set by column    D    of that table, unless calculations based on the actual fund reserve rate would result in the selection of a column with lower contribution rates, in which case the column with the lower contribution rates would apply; and

        3.       For fiscal year 2024, the rates set by column    E    of that table, unless calculations based on the actual fund reserve rate would result in the selection of a column with lower contribution rates, in which case the column with the lower contribution rates would apply.

        The bill also exempts any nonprofit or governmental employer which elects to make payments in lieu of contributions from liability for payments in lieu of contributions with respect to 50 percent of unemployment benefits paid to employees laid off by the employer during that public health emergency and any extensions of it.

 

 

FISCAL ANALYSIS

 

EXECUTIVE BRANCH

 

          The New Jersey Department of Labor and Workforce Development (DOLWD) provided data concerning revenues and expenditures of the State   s UI fund.

 

OFFICE OF LEGISLATIVE SERVICES

 

UI Fund Revenue Reductions:

        The OLS estimates that the bill will reduce revenues to the UI Fund by at least $660 million in FY 2022, $450 million in FY 2023, and $230 million in FY 2024 relative to amounts that would have been collected from employers based on the fund   s reserve ratio and statutory funding formula.  These revenue reductions are in actuality deferrals of employer contributions to the UI Fund because beginning in FY 2025, employer contribution rates will return to their statutory levels and remain in place until the UI fund is replenished and federal loans are repaid.

        The UI fund   s reserve ratio, in part, determines an employer   s tax rate, which will increase as the reserve ratio falls in order to replenish the fund balance as unemployment benefits get paid out.   As a result of the Covid-19 pandemic, a significant amount of benefits have been paid during calendar year (CY) 2020 and the fund balance has been reduced.   The decline in the reserve ratio would have automatically triggered the highest possible employer contribution rate beginning in FY 2022, but this bill excludes the fund   s reserve ratio in calculating an employer   s contribution rate and instead provides for lower employer contributions over a three-year period.

        Currently, unemployment contribution rates for FY 2021 are set by column    B    of the Experience Rating Tax Table.   If this bill is not enacted, the UI fund will most likely have a negative balance when the employer UI tax rates are calculated on March 31, 2021 for FY 2022 because of the large amount of UI benefits paid out to employees during CY 2020.   Consequently, the taxes on employers for FY 2022 would be the taxes indicated in column    E    plus the 10% surcharge currently provided, imposing the highest level of UI taxes provided by law.   According to data provided by the DOLWD and displayed in the table below, total FY 2022 taxes would be increased by $940 million compared with FY 2021, or 58%, from $1.62 billion under the    B    schedule to $2.56 billion under the    E    plus 10% schedule.

          Absent this bill or other intervention, the OLS notes that the statutory tax schedule would have resulted in the    E    plus 10% schedule applying to FY2022 and possibly subsequent years.   However, the bill replaces this increase with a new mandated progression (overriding any higher tax rates triggered by the reserve ratios) of the    C    schedule in FY 2022, the    D    schedule in FY 2023, and the    E    schedule in FY 2024.