14 states run out of unemployment-benefit reserves; 18 more are close to insolvency

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  1. http://www.sltrib.com/business/ci_12614107

    Utah's jobless benefit reserves still solvent

    Recession » Rising unemployment claims could force tax hikes for employers.

    By Tony Semerad

    The Salt Lake Tribune
    Updated: 06/17/2009 11:07:33 PM MDT

    Cash reserves for paying benefits to out-of-work Utahns remain financially healthy, in spite of one of the toughest challenges to the state's unemployment system in its history.

    The global economic downturn has pushed Utah's unemployment rate to a five-year high, 5.2 percent. Although still below the national average of 9.4 percent, the jobless surge has pushed benefits paid to unemployed Utah workers from a total of $3 million per week less than a year ago to more than $14 million a week today.

    That, in turn, is drawing heavily on the state's unemployment insurance reserves, a state-managed trust fund paid for by employer taxes that has dropped to $645.8 million from $846.6 million a year ago.

    Those numbers look bad, but they could be much worse.

    "Utah's one of the few fortunate states that in the face of this economic downturn has been able to maintain solvency,'' Kristen Cox, executive director of the state Department of Workforce Services, told state lawmakers on Wednesday.

    Fourteen states -- Michigan, New York, Ohio and California among them -- have completely run out of unemployment-benefit reserves, forcing them to borrow a total of $8 billion from the federal government. Another 18 states are edging toward insolvency as the recession continues.

    Unlike a majority of states, Utah automatically ties benefit levels and insurance premiums to key measures of the state's economic prosperity, so that by law the trust
    fund is built up in years of economic growth.

    A top state official called this method of indexing "one of the wonders of our system.''

    "This is the biggest test we've had to date and it's going pretty darn well,'' said Bill Starks, Utah's director of unemployment insurance.

    At the current benefits spending levels, Starks said the trust fund could fall below a state-set minimum level sometime next year, potentially triggering an increase in what employers are required to pay into the system sometime in 2010 or 2011. "But we don't expect the fund will go insolvent,'' he said.

    The news was greeted warily by legislators.

    "We've faced challenges and there are more challenges ahead,'' said state Rep. Steven Mascaro, R-West Jordan, co-chair of the Legislature's interim Committee on Workforce Services and Community and Economic Development.

    Although there are signs of economic improvement, unemployment rates usually lag six to 12 months behind the economy as a whole, Starks said, meaning that demand for the 26-week, $320-a-week unemployment benefit will remain high well into a recovery.

    Utah is seeing 2,000 to 3,000 new jobless claims weekly, down from a peak of 5,695 the second week in January.

    Starks estimated that every week about a thousand out-of-work Utahns completely run out of state unemployment benefits and have to seek additional emergency benefits provided under President Barack Obama's stimulus package.

    Another 375 state residents per week exhaust those emergency benefits, leaving them with no support.

    "We're watching that carefully,'' Starks said.