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Report: Unemployment Insurance System Faces Funding Crisis |
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As the Senate takes up the issue of extending unemployment insurance (UI) benefits this week, a new report shows the UI funds of several states are not solvent enough to weather a recession.
With the Bush economy in freefall, more workers are being forced to apply for jobless benefits. In fact, as the number of U.S. workers filing first-time claims for benefits rose last week, the total receiving benefits climbed to the highest level in more than four years.
On top of that, some 200,000 jobless workers a month exhaust their UI benefits without finding new jobs, and about 3.5 million unemployed workers will lose jobless benefits this year.
The report, Unemployment Insurance Financing: Examining State Trust Funds Facing Recession, by the National Employment Law Project (NELP), finds that overall, state UI solvency is worse now than it was prior to the 2001 recession. Overall, current state UI reserves are only about half the levels recommended prior to a recession. Click here to download the report.
The first 26 weeks of unemployment checks are written by the state where workers reside. Any extensions are paid for by the federal government. NELP Deputy Director Andrew Stettner, one of the report’s authors, says this solvency crisis affects every worker.
If the state’s trust fund goes bankrupt, there’s pressure to cut benefits. We have to raise enough money for the trust funds to keep that from happening.
According to the report, state UI trust funds have an overall balance of $38.3 billion, compared with $54.05 billion at the beginning of the 2001 recession. The report estimates that as many as 18 states will have serious problems meeting the demand for UI benefits in a recession.
Four states—Michigan, Missouri, New York and Ohio—which have been hit hard by the decline in manufacturing jobs, could have trouble meeting the need for UI benefits as early as this year, the report says. Another 14 states could join this group if the job slump continues or their UI payroll taxes don’t rise to meet the demands created by the growing number of claims.
Says Stettner:
If we are headed into a recession and unemployment goes up, a number of states will have problems. It’s up to workers to say, “We need to find a way not to cut benefits and we need to find a more permanent solution.”
The biggest single change that would keep the trust funds solvent, he says, is to increase the percentage of wages that are taxed to pay for unemployment benefits. For example, in California, only the first $7,000 of a worker’s wage is taxed, and that’s been the law since 1983. But the average wages of California workers have more than doubled in those 25 years, Stettner says. At least, he says, the proportion of wages taxed ought to be adjusted for inflation. But so far, only a few states do that.
Last week, the House voted, 256–166, to help long-term jobless workers who face difficult times finding new work in the sputtering Bush economy with an extra 13 to 26 weeks of UI benefits. The UI extension was added to a supplemental spending bill to fund the war in Iraq.
The legislation would provide an additional 13 weeks of UI benefits for jobless workers in every state, plus 13 more weeks for those in states with high unemployment rates (more than 6 percent).
Twenty-six weeks is enough when the economy is good and jobs are being created. But when it takes, on average, four weeks to find a new job, it’s not long enough. That’s why we need a federal extension.
You can take action to help the long-term jobless. Call your senator at 202-224-3121 and urge him or her to vote to extend UI benefits.
President Bush says he will veto the war spending bill if it includes the UI extension, along with several other domestic provisions, including improving veterans’ benefits, blocking Bush administration restrictions on Medicaid and a $20 billion cut to states and money to improve the levees around New Orleans.
Earlier this year, the AFL-CIO urged Congress to include a UI extension in an economic stimulus package, but the measure was dropped from the legislation after Bush said he would veto the bill if it included an extension.
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