States face dwindling unemployment funds

By Andrew Welsh-Huggins

THE ASSOCIATED PRESS

The funds states use to pay unemployment benefits are running low, raising fears of higher taxes on businesses and less money to help out-of-work employees during tight economic times.

Thirty-three states have funds below recommended levels, meaning they’re at risk of running out in less than a year unless they’re replenished as required under federal law. Nearly half the states could run out in less than six months.

The funds, totaling about $38 billion today, are in worse shape than before the last recession, when the total was about $54 billion.

States can’t skip paying unemployment insurance benefits to out-of-work employees, meaning they must borrow money if the funds get too low.

Finding the money to repay those loans can mean dipping into other state resources, hitting employers with surcharges or eventually reducing the benefits provided to laid-off workers.

In California, the fund will hit a low of about $1.1 billion by year’s end and is predicted to be insolvent next year, requiring some borrowing by the state. Benefit payments are expected to hit $2.6 billion by the end of next year.

In New York, the fund stands at about $694 million, compared with potential payouts that could top $3 billion.

In Michigan, which suffers from the nation’s highest annual unemployment rate, the fund is at a paltry $2.8 million. The state already has had to borrow money to keep the fund in the black for the past two fiscal years.

In Ohio, the trust fund is at about $529 million, well below the state’s recommended safety level of about $2.3 billion.

One problem with unemployment funds is that the way they raise money in many states hasn’t kept pace with inflation.

In California, for example, companies pay unemployment taxes on a worker’s first $7,000, a figure that hasn’t changed since 1984. But the benefits California pays out have risen considerably since then.

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Official says Illinois benefits ‘in good shape’
Though dollars for unemployment benefits are running low in other states, the fund that covers such benefits in Illinois is stable.

So says Tim Drea, secretary-treasurer of the Illinois AFL-CIO, the umbrella labor organization.

“We’re not concerned,” he said.

The Illinois unemployment insurance program was developed jointly by business and labor groups. Drea said business and labor leaders meet quarterly with the Illinois Department of Employment Security, which administers the program, to reassess the program’s revenues and expenditures.

“What’s coming in and what’s going out is running pretty close to the projections that were made a couple years ago,” he said. “I think we’re in good shape here in Illinois and there’s no reason for alarm whatsoever.”

The Illinois fund is projected to have a $200 million deficit in 2008 but it follows a $600 million surplus in 2005, a $700 million surplus in 2006 and a $400 million surplus in 2007, according to the state department’s records.

The state is expected to dispense $2.2 billion in unemployment benefits this year, according to the Illinois Department of Employment Security.

“You pay in the good times, and you build up the fund,” he said. “In the bad times, you might go into deficit spending, but you bank on the savings that you made in the good times.”

– Aaron Chambers

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