Because of the growing number of jobless New Mexicans, the state program that pays unemployment benefits is running out of money — and that could force a tax increase on employers next year.

About $1 million a day is paid out on unemployment claims in New Mexico, according to the state Department of Workforce Solutions.

Gov. Bill Richardson and the Legislature must decide how to keep the unemployment insurance trust fund solvent. It's yet another politically thorny problem that will confront lawmakers when they convene in January for a 30-day session.

Among the options under consideration: higher taxes on businesses and cutting unemployment benefits. But a business leader warns that higher taxes during a recession could force companies to lay off workers or close their doors, worsening the state's economic problems.

"The more we tax business, the less able they are to produce a product and drive more revenue back into the state," said Terri Cole, president of the Greater Albuquerque Chamber of Commerce. "There has got to be a better way to handle this problem than raising taxes on the business community at the most difficult time in our history."

Besides dealing with the insolvent unemployment fund, the Legislature and governor must resolve a potential $600 million budget shortfall next year because of lower-than-expected revenues. Tax increases and cuts in government programs and public education are likely to patch up the operating budget.

New Mexico's unemployment rate is at a two-decade high. The jobless rate stood at 7.9 percent in October. It was 4.5 percent a year ago. Roughly 75,000 people are unemployed, up 32,000 in the past year.

There's a balance of about $230 million in the fund that pays unemployment benefits. That's dropped from more than $500 million about 18 months ago, and the fund is projected to run into the red by January 2011 if nothing is done.

Workforce Solutions Secretary Ken Ortiz said the department will recommend proposals to the governor later this month for restoring the fund's solvency.

The most likely fix is a combination of a tax increase, benefit reductions and taking money from a $100 million endowment account, which was created in 2007 to provide a safety net to ensure the state can make payments to the jobless. The size of a possible tax increase or amounts for other options haven't been determined.

New Mexico's plight isn't unique. Thirty-three states expect to raise unemployment taxes next year to shore up their benefit trust funds, according to the National Association of State Workforce Agencies. States also have an option of borrowing from the federal government to pay benefits if their funds become insolvent.

So far this year, New Mexico has paid out $414 million in basic benefits to the unemployed, who qualify for 26 weeks of assistance when they lose jobs. An additional $206 million in extended benefits have been paid to New Mexicans, but the federal government has picked up those costs.

The average weekly benefit is $235.

The federal government recommends that states keep enough in their unemployment accounts to pay a year's worth of benefits. But department officials said it's unlikely New Mexico can do that.

"What we're absolutely trying to do is avoid any sort of significant increase in contributions by employers right now," said Jason Lewis, the department's chief of staff.

Unemployment taxes on about 54,000 employers provide about $93 million a year. A 2007 state law lowered taxes to their current rates and locked them in place through 2010.

At the time, New Mexico's economy was sizzling and the unemployment trust fund was flush with cash. Employers pay unemployment taxes on the first $20,900 of a worker's wages. Rates vary for companies depending on their employment history.




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