"Broken" New York unemployment trust may cost $1.3 billion

NEW YORK (Reuters) - New York's "broken" unemployment trust could cost the state $1.265 billion in interest penalties over the next eight years because it has a $3.2 billion deficit, Governor David Paterson said Wednesday.

By driving up unemployment, the recession has drained many state unemployment trusts, forcing them to rely on federal loans.

New York is one of the few states that does not index its benefits for unemployed workers to the average weekly wage, the Democratic governor said in a statement.

Benefits for unemployed New Yorkers have not been raised from $405 since 2000.

In return for increasing benefits to $475 in January 2011, Paterson proposed higher penalties for workers who collect this aid when are not entitled to it. He also would double how long people must wait to become eligible if they are fired for "misconduct, refuse a job or leave a job without good cause."

New York's benefits should be gradually increased until they are indexed to 50 percent of the average weekly raise by July 2018, he said.

To help pay for more generous benefits, Paterson said the taxable wage base used to calculate unemployment insurance contributions in 2018 would rise to $14,000 from $8,500.

After that, the wage base would be set at 18 percent of a worker's annual wage but it would rise or fall depending on the unemployment trust's solvency.

The lowest tax bracket for employers with few if any layoffs would be abolished. "Employers in these brackets pay little in unemployment insurance taxes, which makes the creation of a solvent system impossible with placing extraordinary burdens on other employers," he said.