TO:              CIANJ Members

FROM:        Paul Tyahla, Vice President, Government Affairs and Communications

DATE:         Thursday, February 25, 2010

SUBJECT:   CIANJ Support for Governor Christie's UI Fund Solutions

The solvency of the state's Unemployment Insurance (UI) Fund has been a growing source of concern for CIANJ. Previous raids of the fund, combined with the downturn in the economy, have caused the fund’s balance to drop below its statutorily-required minimum. Last year, this resulted in an automatically triggered $350 million payroll tax increase on the state's employers.

Employers are faced with another automatic tax increase this year of approximately $1 billion if no action is taken. That would equal an average employer tax hike of $400 per employee at each firm.

Governor Christie unveiled a plan earlier today that would result in a substantially reduced tax hike on employers.

Detail regarding governor's plan is available at this link.

The proposal brings the state's unemployment benefits in line with other states in the region, makes needed changes to eligibility rules, and softens the tax hike on companies. If adopted in whole, New Jersey will still have some of the most generous unemployment benefits in the nation.

Some the proposed changes would,

Create firewalls to limit the rate of a tax hike in any given year
Tighten rules regarding eligibility for benefits if a worker is dismissed for misconduct
Reduce weekly benefit amounts from $600 per week to $550 per week
Establish a one-week waiting period for benefits
Make an extension of benefits dependent on 100 percent federal funding of benefit costs

Increasing the payroll tax during a recession is the worst way to decrease unemployment in the state. CIANJ is supportive of the measures proposed today. The package requires legislative approval to become law, and will be formally introduced soon.

CIANJ members with questions should contact me via e-mail at ptyahla[nospam]cianj.org or call 201.368.2100.

Background

New Jersery's UI fund is filled by a tax on employers and on workers, with employers contributing about 88% of the fund's value. If the fund's balance is below its statutory minimum threshold, then an automatic tax increase is triggered on employers. There is no similar trigger for an employee tax.

It is because of this arrangement that CIANJ has opposed previous budgets that diverted monies from the UI fund. Unfortunately, the legislature raided the fund of more than $4.7 billion between 1993 and 2005. These raids were the largest contributing factor to the fund’s insolvency, which resulted in last year's increase.

The fund began operating in a deficit last year, and the state has been borrowing money from the federal government to meet its UI obligations since that time.

A CIANJ-supported Constitutional Amendment will be put to state voters this November to prohibit future raids. This should ensure employers are no longer required to pay twice for the same employee benefit because of legislative mismanagement.