Ken's Project Blog

January 15, 2011

State Unemployment Debt

Filed under: Politics,Taxation — Ken @ 11:13 am

Over at the New York Times, there’s an interesting article describing the unemployment insurance debt incurred by many (not all) states in trying to prop-up their chronically under-funded state unemployment trust funds.

We’ve all read the stories about the so-called “99’ers” – folks who have been on unemployment for 99 weeks whose benefits run out before they find employment, but how many people understand how those benefits are funded? Each state offers 26 weeks of unemployment benefits from a trust fund that collects payments from employers and in some states from the workers as well. These benefits are the sole responsibility of each state, and in order to meet rising demands for benefits payments many states had to borrow funds from the federal government to make up for their under-funded trust funds. Once a beneficiary exhausts their initial 26 weeks of benefits, that is when the federally funded programs step in and directly fund weeks 27 through 99. Once a beneficiary exhausts all 99 weeks of benefits they no longer receive any unemployment benefits, but can turn to other benefits programs to help provide for their needs. (None of the promises of “helping the 99’ers” amounted to anything – all the “unemployment extensions” enacted simply funded the week 27 through 99 benefits, no bills were ever passed to extend unemployment benefits beyond 99 weeks.)

So with weeks 27 through 99 fully paid-for by the federal government, why do the states owe the federal government so much money? Because the states that couldn’t meet their obligation for the first 26 weeks were forced to go to the federal government, hat in hand, and ask for a loan to meet current needs. Why were the state’s unemployment trust funds so underfunded? In part because of sweet-heart deals designed to lure businesses into the state that forgave some companies of their unemployment insurance (and other) obligations for a period of time to entice them to relocate, but the main reason was likely a shrinking workforce and an unprecedented sustained surge in unemployment applications.

The New York Times article does a good job explaining the deeper dynamics, including how some states are planning on meeting their federal interest payment obligations (either by raising taxes, selling bonds, or hoping really, really hard that the federal gov’t will simply either forgive the payments or extend the payment schedule, giving the states some breathing room to meet their obligations), I highly recommend reading the article.

Source: New York Times, U.S. Bills States $1.3 Billion in Interest Amid Tight Budgets – January 14th, 2011

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