A joint investigation by ProPublica and public radio’s Marketplace has found that states are running out of unemployment insurance funds and will have to raise taxes to keep the funds running. The investigation said the programs have been underfunded for years and now are buckling under the strain of the economy.
“Fourteen states have already run out of funds to pay unemployment insurance claims and taken out a total of more than $8 billion in federal loans to cover the shortfalls. At least 18 more states are in danger of exhausting their unemployment insurance trust funds.
“States with empty unemployment insurance trust funds have pointed to the severe recession as the cause for their plight, but a closer examination of their trust funds shows underfunding and poor planning as the main culprit. Instead of building up reserves during good years, legislatures in these states yielded to political pressure for high benefits and low taxes. The result: dangerously low trust fund balances.”
The story said states will continue to write checks, but with money borrowed from the federal government:
“Federal loans will ensure that states can keep mailing out benefit checks. But the loans pass costs along to federal taxpayers, including people who live in states where unemployment insurance is sufficiently funded. Nor will they solve the long-term unemployment insurance crisis. Taxpayers in states that have borrowed money will have to foot the bill for tens of millions of dollars in interest charges, which must be paid out of the state’s general budget because rules prohibit using unemployment insurance funds.
“At the end of 2007, after years of increasing employment and before the current recession hit, 33 states had less than a year’s worth of reserves in their trust funds, even though many experts recommend 18 months’ worth. Four states had negative balances in the years before the recession started.”
Here are links to reports from Marketplace and ProPublica: