SANTA FE, N.M. (KRQE) – More than six months into the COVID-19 pandemic, the state fund used to pay New Mexico’s unemployment claims has been completely drained, forcing the state to borrow cash from the federal government to pay more than 90,000 jobless continued claims. The unprecedented situation has New Mexico lawmakers evaluating options over how to repay the first-time government loan, which could affect future jobless benefits.
The update came from the state department overseeing unemployment benefits Tuesday during a New Mexico House committee hearing. The state’s Department of Workforce Solutions has paid over $2-billion in benefits since March 15. In July 2020, more than 150,000 New Mexicans continued to receive unemployment benefits, compared to roughly 9,600 New Mexicans receiving benefits before the pandemic in March 2020.
“We’re spending more on Unemployment Insurance benefits than we’re taking in,” said Richard Anklam, executive director of the New Mexico Tax Research Institute. “We estimated that the trust fund would run out of money in September 2020.”
Workforce Solutions Cabinet Secretary Bill McCamley said Tuesday the state depleted its account on September 8, when it began borrowing money from the federal government. As of Monday, McCamley says the state has borrowed $34,574,212.83 from the U.S. Department of Labor.
“That is far short of the $125-million we were allowed to borrow up to for September,” McCamley said. “The hit isn’t as bad as the worst-case scenario we were thinking.”
While the borrowing hasn’t extended as deep as the state initially projected, the state continues to borrow funds and will need to reimburse the federal government at some point. Anklam told lawmakers Tuesday that under the CARES Act, the loans will be interest-free until January. However, the federal government can eventually shift the rate anywhere between 0.6% and 6.4%.
“If the loan isn’t paid back timely, (the federal government) becomes ‘Guido, the collector,’ and they start beating up your employers which then moves into your employees and their ability to make payroll” Anklam said. “If the rates go from 0.6-percent to 6.4-percent, that’s pretty devastating to employers and their employees.”
Over the next several months, McCamley says lawmakers will have to consider how to begin replenishing the state’s unemployment fund, while also paying back continued federal loans. McCamley says the state’s options for paying off the debt could include decreasing the number of unemployment benefits paid out to individuals, decreasing the amount of time benefits are paid out or increasing taxes to generate more unemployment benefit revenue.
One lawmaker believes one way to fix it is to get people back to work. “At some point, we’ve got to determine that New Mexicans can go back to work the ones who want to- folks who are worried, we need to make some provision for them folks who want to work and provide for themselves rather than waiting on a government check,” said Rep. Rod Montoya (R- Farmington).
McCamley says they only want people to go back to work when it’s safe.
“If we don’t find a way to deal with the situation, and we continue to borrow money from the federal government to pay these benefits out, the feds will solve this issue for us,” McCamley said. “They will start raising taxes themselves, not next year, but by the end of 2022.”
McCamley says the Department of Workforce Solutions has convened a working group to provide recommendations to lawmakers. One of those recommendations could be related to tax rates. “Do we want to have some kind of temporary revenue increase to both help pay off the loan itself, and also get the trust fund back to a healthy level,” McCamley said.
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