The coronavirus pandemic has depleted the fund New Mexico uses to pay unemployment benefits, forcing the state to borrow money from the federal government to continue paying claims.
The state’s Department of Workforce Solutions has paid out more than $2 billion in unemployment benefits since mid-March. There are about 90,000 people currently receiving jobless benefits, down from a high of 150,000 in July, although just 9,600 in New Mexico were on unemployment before mid-March.
New Mexico’s and other states’ unemployment filings skyrocketed in late March when government restrictions were put in place meant to slow the spead of COVID-19.
Since testing began in early March, New Mexico has reported 27,683 positive coronavirus tests, including 106 on Monday, and 851 deaths, including two reported Monday.
Department of Workforce Solutions Cabinet Secretary Bill McCamley told a legislative committee hearing Tuesday that the state’s unemployment fund ran out of money on Sept. 8. Since then, New Mexico has borrowed almost $35.6 million to continue payments.
“That is far short of the $125 million we were allowed to borrow up to for September,” McCamley told the committee. “The hit isn’t as bad as the worst-case scenario we were thinking.”
Under the CARES Act, loans to states are interest-free until January. At that time, the federal government can begin charging interest anywhere from 0.6 percent up to 6.4 percent.
“If the loan isn’t paid back timely, the federal government becomes ‘Guido the collector’ and they start beating up on your employers, which then moves into your employees and their ability to make payroll,” Richard Anklam, executive director of the New Mexico Tax Research Institute, told the committee. “If the rates go from 0.6 percent to 6.4 percent, that’s pretty devastating to employers and their employees.”
McCamley said lawmakers will have to figure out how to replenish the state’s unemployment fund while also repaying the federal government. Options include increasing taxes, lowering the benefit amount or decreasing the amount of time someone can receive payments.
The Department of Workforce Solutions has convened a work group to give recommendations to lawmakers.
“Do we want to have some kind of temporary revenue increase to both pay off the loan itself and also get the trust fund back to a healthy level,” McCamley said regarding a potential tax increase.
He also noted that “If we don’t find a way to deal with this situation, and we continue borrow money from the federal government to pay these benefits out, the feds will solve it for us,” most likely with tax increases within two years.
