NCPA - National Center for Policy Analysis

States Failed to Prepare for Unemployment Claims

November 16, 2001

State governments failed to sock away enough money to cover unemployment insurance during the booming 1990s. Now they face prospects of having to borrow, increase taxes or cut benefits as jobless rolls hit an 18-year high.

  • The latest data from the Labor Department reveal that the $54 billion states had in total reserves as of June 30 would cover 11 months of benefits in a recession.
  • But Texas, for example, has only a three-month reserve of unemployment funds -- and employers there face a tax increase in 2003 to replenish a projected shortfall of $660 million.
  • New York has only a four-month reserve -- and businesses there could face a Jan. 1 tax increase if the trust fund balance appears insufficient at year's end.
  • A 1995 commission recommended that states maintain a 12-month reserve.

All states will continue to pay benefits, however, because the federal government will provide them with loans if they run out of funds.

The Labor Department reported Thursday that 3.83 million workers drew jobless benefits the week ending Nov. 3 -- the most since 1983. Unemployment hit 5.4 percent in October, and the National Bureau of Economic Research has said that most criteria have been met to designate the downturn a recession.

Source: Thomas A. Fogarty, "Increasing Jobless Claims Catch States Short," USA Today, November 16, 2001.


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