New York will spend upwards of $7 billion to pay off debt to the federal government that it took on during the Covid-19 pandemic to pay for unemployment benefits, Gov. Kathy Hochul said this week. The last-minute deal, which will be included in the upcoming state budget, satisfies the demands of businesses, which had been forced to help pay off the debt in the form of a tax hike in recent years.
New York borrowed about $10 billion from the federal government starting in 2020 to pay for a surge in unemployment claims but, unlike most other states, remains in debt to the tune of $6.2 billion. Businesses have shouldered the burden by paying about $450 per employee each year in unemployment insurance taxes.
Groups including the Business Council of New York State and the Partnership for New York City urged Albany leaders to pay off the debt in this year’s budget, calling it an “expensive but necessary step.” Hochul rebuffed those calls in her initial budget plan, even as the state Assembly embraced them — but the governor said Monday that she had reached a deal to pay off the debt after all.
“This has created an incredible burden on our employers, our small businesses in particular,” Hochul told reporters. Lawmakers are expected to finally pass the roughly $254 billion budget, more than a month past its due date and over a week after Hochul announced a deal.
The state will dip into its reserves to cover the debt costs, which will amount to a total of $7 billion in state money, the governor’s office said. Assembly Speaker Carl Heastie said separately that the deal will include both the $6.2 billion in federal debt and additional money to ensure that the state’s unemployment fund remains solvent to pay benefits to future workers. (The budget language will authorize the state to spend up to $8 billion in reserves, but the governor’s office said it expects the cost to be closer to $7 billion.)
Heather Mulligan, president and CEO of the state Business Council, said in a statement that employers 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.”
Supporters of paying off the debt argue that workers will benefit as well: Under state law, any increase in the state’s weekly unemployment benefits must be paused as long as the state remains in debt to the federal government, meaning benefits have been frozen at the 2019 level of $504 despite a scheduled increase to $869 in 2025.
California is the only other state that remains in debt over the pandemic-era benefits, according to New York officials.
Analysts have said it would have taken New York until 2030 to pay off its debt through payroll taxes, which only covered about $800 million of the debt last year. Hochul’s initial budget proposal would have asked taxpayers to cover only $165 million in interest payments that employers would have owed this year, and the governor said she was concerned about adding billions of dollars to the budget given looming federal cuts that could deliver a hit to New York’s coffers.
