Unemployment Insurance

States’ Unemployment Insurance Funds Founder After Years of Poor Planning.

Today we're looking at how state unemployment trust funds are financed -- and how that contributed to the current crisis. A state worker points out phone numbers for unemployment insurance at the state unemployment and career office in San Francisco.It used to be, unemployment insurance meant a sturdy back and a jalopy big enough to fit the whole family. That changed in 1935, when the government started offering unemployment insurance, and states began to save when times were good so there was money to spend to help workers and stimulate the economy when times were bad.In all but a handful of states, it no longer works that way.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. Now, states with bankrupt trust funds will have to increase taxes or cut unemployment benefits at the worst possible time -- during a recession. "This is not a very smart way to run a railroad, because you want benefits to be available quite freely when unemployment rates go up, and you don't want to raise taxes on employers during a recession," said Gary Burtless, an economics expert at the Brookings Institution. "There used to be rules most states abided by, but those standards kind of went the way of the dodo bird."When Holmes met with state officials in the past, he was especially critical of the U.S. Labor Department’s calculations that used the severe 1980s recession as a way to gauge how much money states should squirrel away, because he believed severe unemployment was a one-time effect of the collapse of U.S. manufacturing.

Source;propublica.org