States running out of money for jobless benefits

States are running out of money to pay unemployment claims, forcing them to borrow money from the federal government or increase taxes on businesses to pay the benefits, according to a New York Times story.

The National Association of State Workforce Agencies reports that 30 states are at risk of not having the money to pay unemployment benefits. Indiana, which has a 6.4% unemployment rate, and Michigan (9.3% unemployment) are already borrowing from the feds and other states that are in a financial crisis, such as California, may be in line soon.

Unemployment taxes are collected by states from employers, but the rate varies by state. Trust funds are supposed to be built up in good times to cover benefit requests later. The benefits are guaranteed by the federal government.

Indiana created its own problem by keeping unemployment tax rates artificially low by reducing the tax rates to businesses by 25% in 2001.

To make matters worse, states that borrow money to pay the claims must pay them back within the federal fiscal year. If not, 4.7% interest accrues, which cuts in to states' general funds.

"With longer term solvency issues due to the sharp increase in unemployment, federal borrowing quickly becomes expensive," Loree Levy, a spokeswoman for the Employment Development Department in California, told the Times. "We are anticipating interest payments of $20 million in 2009-10 and if nothing is done to revise the revenue generation model the interest would be $150 million in 2010-11."

And the unemployment rate only keeps getting higher. In November the national unemployment rate was at 6.7% while 250,000 people joined the unemployed in November.

Aaron Crowe is an unemployed journalist in the San Francisco Bay Area. Read about his job hunt at

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