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Despite High Unemployment, Several States Move To Cut Vital Unemployment Benefits (UPDATED)

By Guest Contributor on March 23, 2011 at 7:00 pm

"Despite High Unemployment, Several States Move To Cut Vital Unemployment Benefits (UPDATED)"

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Our guest blogger is Heather Boushey, Senior Economist at the Center for American Progress Action Fund.

Unemployment insurance provides benefits to workers who are unemployed through no fault of their own and are actively seeking re-employment. In the wake of the Great Recession, the unemployment insurance system has been effective in helping families hardest hit by unemployment. In 2009 alone, unemployment benefits lifted 3.3 million families out of poverty.

Even though the unemployment rate remains at a near record high, CNN Money is reporting that a number of states are looking to cut back on benefits:

The jobless may soon find their state unemployment check is not in the mail. A growing number of states are looking to cut back on jobless benefits to minimize the increase in unemployment taxes businesses pay. State officials are concerned that these tax hikes could deter companies from hiring.

Some states, such as Florida and Arkansas, are debating reducing the number of weeks that the jobless can collect state unemployment. Others, including Indiana, want to limit the number of people eligible for benefits.

We knew this day it was coming. The unemployment insurance system is just that, an insurance system and, quite simply, not enough in “premiums” were paid in advance during the years the economy was growing in the 2000s to cover benefits if unemployment rose. During the Great Recession, states did not have enough money saved up to pay out benefits to the millions of unemployed and, as a result, they’ve been borrowing to the tune of tens of billions of dollars from the federal government.

As of March 21, 2011, 32 states and the Virgin Islands had insolvent trust funds and owed $45.9 billion to the federal government. The U.S. Department of Labor estimates that by fiscal year 2013 the amount of outstanding loans could grow to over $68.3 billion. These loan balances are significant, ranging from around one percent to over six percent of state’s total budgets. Now, those loans are coming due.

To address the problem, the Center for American Progress has laid out a comprehensive plan that not only addresses the immediate solvency crisis in the hopes of limiting unemployment benefit cuts in the near term, but also shores up the system for the next recession.

The plan forgives the trust fund loans of insolvent states and rewards states that maintained positive trust-fund balances on two conditions. First, states must agree to improvements to the core functions of the unemployment insurance system and a greater role for the federal government to ensure sufficient funds for times of high unemployment. Second, they must agree to reduce the wide disparity in eligibility rules and benefits across states by harmonizing standards.

This proposal will reduce costs for states as their labor markets struggle to emerge from the Great Recession, improve benefits for the unemployed, and better stabilize our economy in future recessions. The Obama administration has put forward a proposal in its recent budget that is a good first step, extending interest waivers on outstanding loans for a while longer. Sen. Dick Durbin (D-IL) has also introduced a bill that would forgive loans, but does not increase the federal role and, thus, cannot guarantee the system is sustainable in long-term.

Update


Michigan joined the list of states looking to cut unemployment benefits in the face of high loans. Michigan’s state legislature voted to reduce the number of weeks that unemployed workers can collect benefits from 26 weeks, the national standard, to 20 weeks for those who lose their jobs and claim new unemployment benefits starting January 15, 2012.

The legislature cut benefits alongside a technical fix that makes available 20 weeks of federal benefits to the long-term unemployed. Republican lawmakers claimed that cutting benefits was necessary to “cut down on cheaters” and will be “cost-saving,” but at the expense of denying unemployed workers much-needed benefits. If the governor signs the legislation into law, it will make Michigan the only state to reduce state unemployment benefits to less than 26 weeks.

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