Gov. Hochul’s FY 2026 Executive Budget proposes to use $165 million of taxpayer dollars to pay interest payments that employers would otherwise pay this year for the New York State Unemployment Insurance (UI) trust fund debt owed to the U.S. Treasury.
New York’s UI trust fund debt was $6.4 billion as of Feb. 20. It has declined by only $2 billion over the past two years. In 2024, employers paid $3 billion in UI taxes but that was only $800 million more than the cost of benefits paid. At this rate it will take until 2030 to pay off the pandemic-era UI debt.
The governor’s proposal is not even a Band-Aid for the UI trust fund crisis, it’s more like blowing a kiss at a serious wound. It might be a nice gesture for a fleeting moment, but it won’t heal anything. Our UI system desperately needs three things: solvency, tax fairness, and benefit adequacy.
It’s only a matter of time before the next downturn throws more people out of work. President Trump’s tariff war and chainsaw-to-the-government workforce are hastening that moment. One thing’s for certain — there won’t be another federal boost to unemployment benefits as there was in Trump’s first term. New York needs to repair its unemployment insurance safety net as soon as possible since it is vital to protect our own economy as well as the families of laid-off workers.
UI benefits are widely recognized as the most effective form of economic stimulus when the economy falters — recipients plow their benefits right back into the local economy, helping to put the brakes on what otherwise could be a downward economic spiral. New York’s benefit levels have slipped badly in recent years.
New York’s outstanding UI debt has frozen the maximum weekly UI benefit at $504 since 2019. Our average weekly benefits of $432 have fallen below the national average. Average benefits are 40% greater in New Jersey and 70% better in Massachusetts.
Comprehensive UI financing reform is long overdue. Our UI system has been chronically underfunded for years since we have an inordinately low “taxable wage base.” Employers pay UI tax on only $12,800 in wages for each employee. This means that small and low-wage employers pay much more relative to their total wages and corporate giants pay less than they should. New York’s average private sector wage is $95,000. Large profitable employers with many high wage workers can certainly afford to pay their fair share of UI payroll taxes. A higher tax base means the tax rate can come down.
With a $100,000 taxable wage base, and a 0.5% tax rate, New York’s trust fund debt could be paid off in three years with a temporary debt paydown surcharge. There should be a 100% surtax exemption for all small- and medium-size employers of workers with wages below $60,000 since they have been paying more than their fair share for too long. (Big low-wage corporate employers like Walmart wouldn’t qualify for the exemption).
At the same time, the permanent UI financing system that unfairly burdens small businesses and low-wage employers should be overhauled with a much higher permanent taxable wage base along with a tax structure that shifts the burden to large profitable businesses.
New York should also take effective action to ensure that giant “gig economy” corporations like Lyft, DoorDash and Instacart join Uber in reporting their workers’ wages to the state Labor Department and pay their fair share of UI payroll taxes.
The governor’s $165 million UI trust fund interest bailout does nothing to address the UI program’s systemic under-funding. Nor does the Assembly’s support in their “one-house” budget bill last week to use $7 billion in taxpayer funds to pay off the trust fund debt without a hint of how to ensure long-term solvency and tax fairness.
Our Albany leaders should face up to the need for real financing reform that will deliver trust fund solvency and benefit adequacy while providing small business relief and UI tax fairness. Albany should get busy and fix this so the State will have the economic shock absorber it needs, particularly given White House economic policy chaos.
Parrott is senior advisor at the Center for New York City Affairs at The New School.
