Small businesses in New Jersey have averted paying more for unemployment insurance after arguing that doing so would lead to higher unemployment.

Lawmakers passed a bill that postponed a 10 percent insurance surcharge, which Gov. Chris Christie signed into law June 28. The increase was meant to fill a projected $300 million shortfall in the fund that provides unemployment benefits to the state's laid-off workers.

The surcharge was slated to take effect this month. Instead, in June, lawmakers postponed the increase for a year, until July 2014, in the hope that the state's economy will improve and the unemployment rate will decline.

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"We have enough things on our plate already," said Louis Altobelli, of Middle Township, who owns four auto-body shops in South Jersey.

"Any time businesses are charged more in a sluggish economy, it makes it very challenging to expand or do anything with hiring," he said.

New Jersey businesses paid $4.6 billion in unemployment insurance before the 2007 recession. But when the economy crashed in 2008, whatever surplus there was had been spent on other state needs, diverted by both Republican and Democratic administrations.

The state had no choice but to borrow $1.6 billion from the federal government to meet the shortfall. It has repaid most of that loan but still owed $324 million as of June, according to the state Department of Labor and Workforce Development. The state was planning to impose a 10 percent surcharge on businesses to replenish the fund, but lawmakers in June pushed that back at least a year.

"It's really a jobs bill," said state Sen. Jim Whelan, D-Atlantic. "A lot of employers were complaining, business groups were complaining, that this 10 percent surcharge would hurt job growth. The best thing to do in terms of unemployment is to get people jobs. This is an attempt to do that."

Hurricane Sandy put even more strain on the state's unemployment trust fund. After the Oct. 29 storm, New Jersey received the most new monthly claims in state history - 154,500 applications from workers who found themselves without a job. This was three times higher than normal and nearly twice as many applications as the state received at the peak of the recession.

The hurricane wiped out 10 months of employment gains in New Jersey.

"After Hurricane Sandy, employers in South Jersey were struggling just to reopen their doors," said Stefanie Riehl, assistant vice president of the New Jersey Business and Industry Association.

Her group lobbied against the increase, saying it was one of the most important issues facing New Jersey businesses this year.

"As many employers are struggling to avoid layoffs, they can't afford a 10 percent surcharge on top of it," she said.

Since the recession, New Jersey has taken steps to shore up its unemployment insurance trust fund. State voters approved a constitutional amendment in 2010 to keep its dedicated fund from being diverted to other state uses.

And the state is making it more difficult for problem employees to file for unemployment benefits.

"They've done some meaningful reforms in creating a category of severe misconduct in the disqualifications of benefits," Riehl said.

Her business group has been urging New Jersey to replenish its unemployment fund as quickly as possible. Businesses in states that have to borrow federal money lose tax credits and must pay a penalty for this unemployment insurance debt.

"We want to move the fund to solvency as quickly as possible. But we don't believe imposing this 10 percent surcharge is the right way to do that," Riehl said.

New Jersey has been cracking down on cases of unemployment insurance fraud. But the state comptroller's office this year identified additional problems in the program.

An audit found the state had paid more than $10 million in unemployment benefits to 7,600 prison inmates, who are not eligible to receive them, between 2009 and 2011.

Comptroller Matthew Boxer called the findings a "serious gap in program oversight."

Local businesses said paying more for unemployment insurance ultimately would lead to less hiring in South Jersey.

"It certainly isn't going to help anything," said Ray Burke, of Avalon, who employs about 80 people at his Burke Motor Group in Middle Township.

"It's another problem for small business to add to health care and the general regulatory environment," he said. "Things are improving slowly. But it just seems like these other drains on revenues and costs are outpacing the gains. For small business, it's very difficult."

Stephen Muldoon, owner of Bennett Chevrolet in Egg Harbor Township, said his industry typically pays more in unemployment insurance because it has a higher rate of employee turnover. Working in sales is a challenging career, he said.

"It's a culture shock. We have a hard time with steady employment. That's just the nature of the business," he said. "We have some long-term employees who have seen the ups and downs and know it's a good business. But if people go on unemployment, it raises our rates."

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