State Jobless Funds Are Running Dry
By Stephen C. Fehr, Staff Writer
Laid off from your job in Tennessee? Good luck getting unemployment checks right away. So many people have been calling the state lately to apply for benefits that callers often can't get through. "We're sorry. We're unable to take your call at the present time due to extremely high call volume," says a recording.
In North Carolina, where more people are out of jobs than ever, state employees are working overtime and on weekends to reduce a backlog of requests to verify unemployment benefits that has been as high as 17,000, compared to only a few cases a day a year ago.
Michigan , which has the nation's highest unemployment rate at 8.9 percent, has a different problem. There isn't enough money in its unemployment insurance fund to cover claims, so the state has been forced to borrow from the federal government to pay jobless benefits.
The number of Americans filing new claims for unemployment benefits is at the highest levels since the Sept. 11, 2001, attacks. Weekly claims have exceeded 400,000 for 11 weeks, compared to 324,000 a year ago, a level that economists say indicates a recession. The rise in joblessness is draining revenue from state treasuries and straining the governments' ability to pay for and deliver unemployment benefits in a timely way.
Unemployment insurance trust funds are in danger of insolvency in California , Michigan , Missouri , New York , Ohio , South Carolina and Wisconsin . According to the National Employment Law Project, a policy group based in New York that advocates on behalf of the unemployed, 11 additional states are facing financial challenges paying their jobless benefits.
"I'm very concerned about the trust fund situation," said Andrew Stettner, deputy director of the advocacy group. "This isn't going to be a short and sweet (economic) downturn."
States typically collect payroll taxes from employers to pay for jobless claims; lawmakers set the tax rates, the maximum amount of the unemployment checks and the duration of benefits. Many states have boosted the amount of benefit payments but have not increased payroll taxes to keep up, which creates a gap in the trust funds. State benefits generally last up to 26 weeks; some states qualify for up to an additional 13 weeks from the federal government if a state is experiencing high unemployment.
In California , where the jobless rate of 7.3 percent is the highest in 12 years, analysts say the unemployment fund could be as much as $1.6 billion in the red by the end of next year, especially if the jobless rate keeps going up.
"Our forecast for California has unemployment continuing to rise before it starts falling," said Jerry Nickelsburg, a UCLA economist.
Unless lawmakers raise taxes or cut benefits, the shortfall will keep rising and the state will have to borrow money from the federal government for the first time since the 2001 recession. Separately, California officials said Oct. 2 they may have to borrow federal money by the end of the month to pay their bills because the tightening credit market has made it hard for the state to borrow from its traditional lenders.
South Carolina has only enough money in its unemployment fund to pay benefits through the middle of January. The state has been hit by a wave of layoffs in manufacturing and construction. Wisconsin lawmakers and Gov. Jim Doyle (D) raised unemployment taxes in March, but that may not be enough to offset the rise in the jobless rate, which is 5.1 percent. The jobless rate already had been rising in New York and New Jersey before the meltdown last month on Wall Street that will add thousands of workers to the benefits roll.
Stettner said many states have not prepared for the recession by building up their trust fund reserves. Instead, he said, many states tend to cut payroll taxes when times are good. The crunch from the recession will really hit states' jobless funds in the first three months of 2009 when tax revenues are traditionally slow, Stettner said.
"States need to get in front of it" before the spring, he said. "This is the time to do it."
Despite Congress' rescue of the financial system, economists say that unemployment will continue to go up while consumer spending and tax revenue decline. Most analysts predict the recession will last a year or two, continuing a cycle of budget cutting by governors and state legislatures that began this year.
"I can't see the bailout short-circuiting processes that were already under way," said Michael Bordo, a Rutgers University economist. "To the extent we're already going into a recession, unemployment will probably keep rising."
Until it's easier for businesses, governments and consumers to borrow money to meet payrolls, pay bills and buy houses and cars, economists say, companies will continue laying off workers. The jobless not only will file for unemployment checks, but some will be forced to turn to Medicaid, the federal-state health insurance program for low-income Americans that already is pinching state treasuries.
No region has been spared, though some energy and agriculture states have weathered the downturn more easily than others. Of 22 states that gained jobs since December, unemployment has risen in all but Oklahoma and West Virginia , according to an analysis by the Economic Policy Institute. In Texas , which gained more jobs than any other state since December, unemployment jumped from 4.2 percent to 5 percent.