Unemployment Programs in Worst Shape Since 1935

Thursday, 20 Oct 2011 10:18 AM

By Greg McDonald

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State unemployment insurance programs are in their worst financial shape since they were established in 1935 and their outstanding debts to the U.S. Treasury total $37 billion, according to a new report from the National Academy of Social Insurance.
“The current financing crisis in state [unemployment] programs can be described as a perfect storm resulting from the constellation of four factors,” said Urban Institute economist Wayne Vroman, who wrote the report. “These factors are: a deep and prolonged recession, low reserves prior to the recession, the timing of the downturn, and low levels of employment through 2011.”
Although unemployment benefits continue to help millions of families survive, the strain on the 53 programs — including the District of Columbia, Puerto Rico, and the Virgin Islands — is likely to worsen unless additional funding sources can be found.
Among the 53 programs, at least 37 have had to borrow from the federal government since the recession began in late 2007. According to the report, 28 programs have yet to pay back those loans and owe a combined total of $37 billion.
The report outlines steps taken by the states to deal with the deficits, including in some cases raising taxes, reducing benefit payouts, and restricting eligibility. But Vroman said a majority of states are still waiting for Congress to take action on legislation to help them deal with the problem.
Two of legislative proposals, he said, would change the unemployment insurance tax base used to figure how much employers must pay into the system. The tax has been based since 1983 on the first $7,000 of a worker’s wages, but the proposals before Congress would more than double that threshold to $15,000.
“It is clear that higher tax bases are associated with improved long run-solvency,” Vroman said. “But is that sufficient to address the long-run financing problem in the states? Given the large scale of the financing problem and the reluctance of many states to take aggressive actions to improve solvency, it may be time to consider broader reforms.”

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