NM unemployment fund faces insolvency next August

-A A +A
By Barry Massey

SANTA FE, N.M. (AP) — Higher taxes on businesses and cuts in jobless benefits will be necessary to shore up New Mexico's unemployment program, lawmakers were told Wednesday.

The ailing unemployment fund is among the challenges facing Republican Gov.-elect Susana Martinez, who takes office in January and has pledged not to increase taxes.

Workforce Solutions Secretary Ken Ortiz told legislators the state's program for paying unemployment benefits will run out of money next August if the economy doesn't improve and the jobless rate remains high.

"I believe based on the projections ... the tax schedule has to be adjusted at some point," Ortiz said in an interview after he testified before the Legislative Finance Committee.

The fund has a balance of $201 million at the start of the month but is being drained because of the state's high unemployment — 8.2 percent in September.

The state is paying out about $850,000 a day to jobless New Mexicans but that's expected to reach more than $1 million a day starting next month when New Mexico has to begin picking up part of the costs of extended benefits. The federal government has been paying the full cost of benefits beyond 26 weeks, but the state will have to cover half.

New Mexicans will be able to receive a maximum of 46 weeks of unemployment benefits starting next month, down from 93 weeks currently.

Higher taxes on businesses and reductions in benefits are the options for shoring up the unemployment fund. It will be up to the Legislature and the incoming governor to decide how to fix the problem.

Ortiz said that 19 states have imposed a one-time surcharge on employers to replenish their unemployment programs.

If nothing is done and the unemployment fund runs out of money, then businesses will end up paying higher taxes.

New Mexico will have to borrow money from the federal government to pay jobless benefits if the state's fund becomes insolvent. Ortiz said taxes on employers would have to increase to replenish the fund and repay the loan with interest.

Under state law, the employment tax rates are locked into place through 2011. After that, tax rates will automatically increase as needed to replenish the fund unless the Legislature and governor change the law.

New Mexico isn't alone in facing problems with its unemployment compensation program. Thirty-six states have taken out loans from the federal government to pay jobless claims, according to Ortiz.

The average tax payments by a New Mexico business for each of its employees will go to $214 a year in January, up more than 20 percent, under a law enacted earlier this year to rebuild the unemployment trust fund. Rates vary for businesses depending on their history of unemployment claims. Benefits also were trimmed, with the maximum weekly benefit dropping to $380 in July from $426.

Ortiz outlined several options for cutting costs, such as eliminating additional payments the unemployed receive based on the number of dependents they have.