Chamber Testifies Before Assembly Labor Committee
Wednesday, May 11, 2011

M E M O R A N D U M

To: Members of the Assembly Labor Committee

From: Christopher R. Brown, CAE, Director, Government Relations

Date: May 5, 2011

Re: A-3819 (Egan)

The Chamber of Commerce Southern New Jersey is pleased to support A-3819 (Egan), which reduces the unemployment insurance tax rates for employers in FY2012 and FY2013 and modifies the reserve ratios of the Unemployment Insurance Trust Fund after FY 2011. This legislation implements two recommendations made by the Unemployment Insurance Tax Force report issued on February 11, 2011.

New Jersey’s unemployment insurance system was established to provide a safety net for employees who lost their jobs in difficult economic times. The unemployment trust fund builds a reserve during strong economic periods that can then be used to pay claims during an economic downtown. The fund is built by levying a tax on both employees and employers. Employees are taxed at a flat rate while employers are taxed at varying rates depending upon the employer’s experience, including the number of unemployment insurance claims and the overall level of the Unemployment Insurance Trust Fund. The varying rates are divided into five columns, with Column A containing the lowest tax rate and Column E containing the highest tax rate.

The Unemployment Insurance Trust Fund is currently in a deficit as a result of high unemployment levels due to the prolonged recession and years of diversions. The fund became insolvent and New Jersey was forced to borrow $1.75 billion as of April 30, 2010 to pay claims and it is estimated that an additional $1 billion will be needed to pay claims over the next two years.

A-3819 makes two important changes that will help employers in New Jersey. The first change is to shift the employer tax rates for both FY2012 and FY2013. The bill would reduce unemployment insurance tax rates in FY2012 for employers by applying the tax rates found in Column D instead of the tax rates found in Column E, which would have normally applied due to the fact that the Unemployment Insurance Trust Fund is in a deficit situation. In FY2013, the tax rates on employers would be applied from Column E but would remove the additional 10 percent surcharge that would have gone into effect. This will create tax relief for employers that are still facing a difficult post-recession economic environment, while also continuing to fund the Unemployment Insurance Trust Fund.

A-3819 also changes the Unemployment Insurance Trust Fund reserve ratios back to FY2003 levels once the fund is solvent. The Department of Labor and Workforce Development estimates that the fund will reach solvency in FY2017. The unemployment insurance tax rates for employers have been extremely volatile in recent years and small changes in the Unemployment Insurance Trust Fund level have triggered increased taxes for employers. By returning the ratios back to the FY2003 level once solvency is reached will allow employers to experience more stability in the unemployment insurance tax rates.

While the economy is in a post-recession period, the economic conditions in Southern New Jersey remain stagnant. The Chamber of Commerce Southern New Jersey partners with the Federal Reserve Bank of Philadelphia, which surveys our members every quarter to determine the economic outlook in our region. The results of the First Quarter 2011 survey show limited job growth, with 55 percent of the firms indicating steady employment levels with neither significant job creation nor job loss. The survey also indicated that “the outlook for future employment was only slightly more optimistic than in the fourth quarter. The percentage of firms expecting to increase their payrolls over the next six months (17 percent) was greater than the percentage expecting to decrease them (nine percent).” These economic indicators show that any type of tax relief that can be provided to the New Jersey business community would be helpful in the post-recession environment to allow businesses to get on a firmer economic platform.

The Chamber of Commerce Southern New Jersey supports the two changes in this legislation because it creates much needed tax relief for employers and offers a long-term solution to addressing the fund levels of the Unemployment Insurance Trust Fund. The Chamber of Commerce Southern New Jersey urges the members of the Assembly Labor Committee to vote in favor of A-3819.