States beg and borrow to help pay jobless benefits

Discussion in 'Economics' started by MattF, Dec 9, 2008.

  1. MattF


    It's only going to get worse...


    (AP) - Five states, including Ohio, are in danger of running out of funds they use to pay unemployment benefits, meaning they may have no choice but to increase taxes on employers, cut benefits for laid-off workers or borrow the cash.

    This comes at a time when job cuts are accelerating and states are facing huge deficits going into next year.

    States with unemployment funds that are running low are mostly larger ones that are tied closely with manufacturing.

    Michigan, Indiana, Ohio, New York and South Carolina all have reserves of less than three months to cover benefits.

    <b>States aren't allowed to stop paying unemployment insurance benefits to out-of-work employees so they must come up with money.</b>

    Indiana is planning to borrow $330 million from the federal government to cover unemployment claims, something it hasn't done in 25 years. State lawmakers also may be forced to tax businesses to rebuild the fund.

    Some businesses in Michigan will pay an extra $67.50 per employee next year to make up a $473 million deficit in the state's unemployment benefits trust fund. The state has borrowed money to keep the fund afloat the past two fiscal years.

    Ohio Gov. Ted Strickland is asking Congress to replenish the state's fund so that Ohio isn't forced to borrow money and potentially face high interest rates and tax increases on employers.

    Unemployment benefits are funded through a tax paid by employers.

    Nineteen states — from Arkansas to Wisconsin — are at risk of running out of funds in less than a year unless they're replenished as required under federal law, according to a Monday report by the National Conference of State Legislatures. The U.S. Department of Labor suggests that states keep enough money to cover benefits for one year.

    Some of those states have gotten into trouble because they opted to cut taxes years ago instead of building up their unemployment benefits trust funds, said Rick McHugh, unemployment coordinator with the National Employment Law Project, an advocacy group for the unemployed based in New York.

    "It takes years, if not decades, to work yourself into this situation," he said.

    Some states, though, simply can't keep up with the growing demand for benefits, he said.

    A government report released last week showed the proportion of workers receiving jobless benefits has matched a level last reached in September 1992.

    © 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
  2. huh. didn't know the individual states were responsible for the benefit payments
    in Canada it's a federal responsibility, same in UK and EU countries (?)
    so are the benefits paid higher in some states than others ?