Gov. Hochul: NYS will pay off $6B federal loan debt incurred during pandemic

The state will pay off a more than $6 billion pandemic-era debt to the federal government that’s been a burden on employers and has blocked an increase in unemployment insurance benefits to laid-off workers, Gov. Kathy Hochul announced Monday.

She said the state’s takeover of the federal debt will be part of a state budget expected to be voted on this week.

Employers have been paying an added cost for their share of unemployment insurance since 2023. The cost has typically been about $450 per year for each employee into the state Insurance Fund. Employees also pay a share of unemployment insurances through their wages.

Under law, the state was barred from increasing the benefit for workers hit with layoffs until the debt was paid. The maximum benefit is $504 per week, which hasn’t changed since 2019. When the debt is paid, the benefit can rise to $860 per week next year, which was set under a previously passed measure.

Supporters of paying the debt this year noted that many economists are warning of a potential recession that would drive more New Yorkers to apply for unemployment benefits. State Comptroller Thomas DiNapoli said in November that the state’s $504 maximum payment was lower than the maximum in 42 states and just 42% of the typical weekly wage in New York City.

Business operators have complained for years that the vast majority of states had already paid off the special unemployment insurance debt to the federal government. The Biden administration provided the loan to states to deal with the spike in unemployment claims when the pandemic forced most businesses to shutdown to limit spread of the COVID-19 virus.

"This has created an incredible burden on our employers, our small businesses in particular who have been paying extra penalties and costs into the unemployment insurance fund and I want to alleviate that," Hochul told reporters in Copiague.

Assembly Speaker Carl Heastie (D-Bronx) said the decision will involve $8 billion in state funding — $6 billion to pay off the federal debt and more to keep the fund "solvent" and healthy enough for paying future benefits to workers.

He said, however, that the agreement doesn’t raise total spending in the budget. He said the action is, in fiscal accounting terms, a "transfer" of state funds to another state fund, rather than an increase in spending.

Business groups have lobbied for the state to take over the debt, as all but California have done, for years.

"Businesses across New York state are grateful to finally be relieved of this multi-billion-dollar burden that has served as an added tax on all our employers for the past four years," said Heather Mulligan, president of The Business Council of New York State.

"This debt cost businesses over $6 billion, removing the opportunity for many small employers to reinvest in their businesses or local economies," Mulligan said in a statement.

The National Federation of Independent Business said the measure would save many employers hundreds of thousands of dollars a year.

"This provides much needed relief to Main Street businesses that to no fault of their own have dealt with the financial and economic fallout from the pandemic," said the business group’s state director, Ashley Ranslow. "This relief will go a long way in helping small businesses invest in their operations, employees and contend with other financial challenges."

Mario Cilento, president of the AFL-CIO labor organization, said the decision also recognizes "the urgency of substantially raising benefits to a level that will allow workers to better support themselves and their families while they are out of work."

Long Island Association President Matt Cohen said,  “The UI debt is one of the last anti-business vestiges of the COVID pandemic and with all the uncertainty they are currently grappling with, small businesses, which comprise the majority of Long Island businesses, will say good riddance to another cost that squeezes them.”

The agreement has been expected since March to be part of the state budget deal. The $254 billion budget was due April 1, but negotiations between Hochul and legislative leaders have languished.

The debt to the federal government reached $10.1 billion in March 2021 and the state paid it down to $8.04 billion by February 2023. While most other states used additional federal funds released during the pandemic to pay off the debt, Hochul and the State Legislature spent the additional federal funds on the pandemic-forced costs, including for school districts and to help businesses recover from the economic shutdown.

If the debt isn’t paid, the state would have faced interest costs of as much as $400 million over the next five years.