New Mexico official says another tax increase likely to replenish unemployment program

Tax increase looms for NM unemployment fund

SANTA FE, N.M. — Businesses in New Mexico will pay higher taxes starting in January to shore up the program that provides jobless benefits, but a top state official warns that another tax increase probably will be needed next year to keep the unemployment program solvent.

Workforce Solutions Secretary Ken Ortiz said the agency expects the unemployment fund will run out of money in late 2011 if the economy remains weak and there’s little change in the number of jobless New Mexicans.

“Based on the amount we’re paying out, compared to what we’re bringing in, I project some sort of tax increase,” Ortiz said Monday in a telephone interview.

How to rebuild the unemployment fund could be among the early political challenges confronting New Mexico’s next governor, who takes office in January.

The unemployment fund is expected to have a balance of $110 million in January. Employers will pay about $155 million into the fund through taxes but the state expects to spend about $312 million on benefits next year for those without jobs.

New Mexico’s fund is being drained because of high unemployment — 8.7 percent in April compared with 6.6 percent a year ago.

Ortiz said it’s uncertain the size of the tax increase the department will propose. The Legislature and the governor will make the final decision. Lawmakers convene in January for a 60-day session.

However, if nothing is done and the unemployment fund runs out of money, then businesses are guaranteed to face a hefty tax increase.

New Mexico will have to borrow money from the federal government to pay jobless benefits if the state’s unemployment fund becomes insolvent. Once that happens, Ortiz said, taxes on employers jump to the highest rate under state law to replenish the fund and repay the loan with interest. That tax rate — averaging $528 per year for each employee — is three times higher than what’s currently paid.

“That is the last thing we would want to do to New Mexico employers,” Ortiz said.

The average tax payments by a business for each of its employees will go to $190 a year in January, up nearly 22 percent, under a law enacted earlier this year to rebuild the unemployment trust fund. Employers dodged a higher tax increase because the state was able to transfer more than $100 million from a reserve account to shore up the fund. The reserve, which was created when the unemployment program had a large surplus, has been eliminated, however.

Terri Cole, president and CEO of the Greater Albuquerque Chamber of Commerce, said Tuesday the prospect of another tax increase in 2011 was “a complete surprise to the business community and it’s a disappointment as well.”

“We supported the bill to impose this last tax increase on businesses with the commitment that additional taxes would therefore not have to be imposed,” Cole said. “It is difficult for the business community right now and surprises like this, which increase taxes, only makes things harder and more difficult.”

Ortiz said the department is looking for ways to minimize the need for another tax increase next year. Among the options is to trim jobless benefits, such as eliminating additional payments the unemployed receive based on the number of dependents they have. The department also plans to step up its auditing to make certain that businesses are paying all the taxes they owe.