Thirty states are at risk of having the funds that pay out unemployment benefits become insolvent over the next few months, according to the National Association of State Workforce Agencies.
Funds in two states, Indiana and Michigan, have already dried up, and both states are borrowing from the federal government to make payments to the unemployed.Unemployment taxes are collected by states from employers, but the rate varies from state to state per employee. In good times states build up trust funds so that when unemployment is high there is enough money to cover the requests for benefits, which are guaranteed by the federal government.
Indiana’s unemployment trust fund went insolvent last month, and has borrowed twice from Washington since then — the first such loans to the state since 1983. It also expects to request an additional USD 330 million early next year. Michigan, which has been borrowing money from the federal government for the past few years to replenish its fund, is now USD 508.8 million in the hole and unable to repay it.
Next month the state, where the unemployment rate is more than 9 percent, will begin levying a special “solvency tax” against some employers to replenish its trust fund.California, New York, Ohio, Rhode Island and other states are inching toward insolvency as well, and may have to borrow from the federal government to get through at least the first quarter of 2009.Officials in New York said the state’s trust fund has about USD 314 million, compared with USD 595 million last year, and will most likely have to borrow from the federal government in January.
The situation puts states, many of them facing huge deficits, in an even tighter vise. As more people lose their jobs, the revenue base that the benefits are drawn from shrinks, making it harder to pay claims. Adding to that burden is that states will eventually have to pay back what they borrow.
Some states are worried about next year because the lion’s share of unemployment taxes are collected early in each year, and they are not sure the money will stretch through the end of the next year. The maximum amount of income the federal government can tax employers for each worker is USD 7,000. (The amount ranges from about USD 7,000 to about USD 25,000 for state taxes.)
Source: FOCUS Information Agency
Published by Mike Hitchen, Mike Hitchen Consulting
Putting principles before profits
This blog will be on holiday from Dec 15 2008 -Jan 12 2009!
Putting principles before profits
This blog will be on holiday from Dec 15 2008 -Jan 12 2009!
