State officials had plenty of warning. Over the past three decades, two national commissions and a series of government audits sounded alarms about the declining number of states were setting aside money to pay unemployment insurance for workers made redundant.
"Trust Fund inadequate reserves," the federal auditors said in a 1988 report.
It is now clear that the warnings were almost ignored. In contrast, states keep dismantle the trust funds, especially by reducing taxes for unemployment insurance at the request of the business community. Low balances quickly insolvency when the recession hit, which takes about 30 states to borrow $ 41,500,000,000 federal government to pay unemployment benefits to its growing population of unemployed.
The impact will be felt for years.
In the short term, states must find the money to pay the interest on loans. Usually involving a special tax on business until the loan is paid. Some states could benefit from general revenues, making it more difficult to pay for schools, roads and other public services.
In the long term, the state will have to replenish their unemployment insurance programs. That usually leads to payroll taxes higher, leaving companies with less money to invest.
recessions in the past have led to insolvency. Seven states borrow money in the decade of 1990, eight did so as a result of the 2001 recession.
But the figures are much worse this time because of the recession was more severe and the funds were already low when he arrived, said Wayne Vroman, an analyst at the Urban Institute, a liberal-leaning think tank based in Washington.
The Obama administration this month proposed giving states an exemption in the payment of interest on this fall. By the way, the administration increases the amount of wages that companies pay the federal unemployment tax. Many states are likely to follow his example as a way to boost depleted trust fund.
Companies pay a tax on federal and state payroll. The federal tax mainly covers administrative costs, the state tax paid by the regular benefits of a worker when they parted. The Treasury Department manages the trust funds of tax for each state.
Each state decides whether the unemployment fund has enough money. In 2000, total reserves of the states and territories came to about $ 54 billion. That was reduced to $ 38 million at the end of 2007, as the recession began.
During the next two years, the reserves fell to $ 11.1 million, lower than any time in program history when adjusted for inflation, the Government Accountability Office said in its latest report on the subject. However, the benefits have remained relatively flat or decreased in comparison with the average weekly wage.
"If you look from the employers point of view, no reservations will want to build too high, because then there is a growing risk that the advocates of expansion would benefit reserves point to high and say, 'We can see the afford to increase profits, "said Rich Hobbie, Executive Director of the National Association of State Workforce.
A review of government programs for unemployment insurance shows how states weakened their trust funds in the last two decades.
In Georgia, lawmakers gave employers a tax holiday of four years from 1999 to 2003. Employers saved over $ 1 billion, but reserves to the trust funds declined 40 percent to $ 700 million. The state has progressively increased its unemployment insurance taxes since then, but not enough to restore the trust fund to previous levels. The state began borrowing in December 2009. Washington must now about $ 588,000,000.
Republican Mark Butler, Georgia labor commissioner, said his state had the lowest unemployment insurance tax in the nation when the tax holiday was enacted.
"The decision to do this is not really based on any reasoIt practice was based on a political decision, which I think, by all accounts now, we can look back and say it was a wrong decision," Butler said. "Now we are in a situation where we had to borrow money and that puts everyone in a difficult situation."
In New Jersey, lawmakers used a combined approach to exhaust the trust fund. The Legislature extended the benefits and reduce taxes and spending $ 4,700,000,000 in income of trust funds to reimburse hospitals for indigent health care. The money was diverted for a period of 15 years and helps explain why the state trust fund fell from $ 3.1 million in 2000 to $ 35 million in late 2010. The state has had to borrow $ 1,750,000,000 from the federal government to keep the program afloat.
"It was a real abdication of responsibility and a complete lack of understanding of how to fund an unemployment insurance - to make sure you have enough money in bad economic times," said Philip Kirschner, president of the New Jersey Division Industry Association. "In times of economic boom that collects your bank account, but in New Jersey, said, 'Well, we have all this money, let's go."
California took its own path to the trust fund insolvency. Lawmakers kept the tax rates on the payroll of the same, but gradually doubled the maximum weekly benefit paid to workers laid off at $ 450. The average benefit is now about $ 300 and paid for 20 weeks.
Loree Levy, spokesman for the Department of Workforce Development California, said lawmakers were warned of the consequences.
"We testified in legislative hearings that the fund eventually go bankrupt and become a permanent state of insolvency, if the legislation was not approved to increase revenue," said Levy.
California has provided 9.8 billion U.S. dollars to keep the unemployment insurance payments flowing. Should the federal government interest payments of $ 362 million at the end of September.
In Michigan, unemployment decreased tax rates on insurance from 1994 to 2001. The trust fund prospered over the years due to a healthy economy and low unemployment. Then came the recession and released reserves. In response, lawmakers in Michigan adopted a law which reduced the amount of wages subject to unemployment taxes of $ 9,500 to $ 9,000. Increased the maximum weekly benefit of $ 300 to $ 362. The trust fund was reduced from 1.2 billion U.S. dollars to $ 112 million over the next four years. In September 2006, Michigan became the first state to initiate federal government loans.
Other states held their purpose trust funds off as part of an approach called "pay-as-you-go." Texas is a nationally recognized leader in this effort. His philosophy is that in the long term, it is better for the economy to keep the maximum dollars in the hands of corporations rather than the government. Texas had to borrow $ 1.3 billion in 2009. State officials do not repent of his policy.
"By keeping the minimum at (trust fund), Texas, is able to maximize the funds flowing into the Texas economy, which allows the creation of jobs and stimulating economic growth," said Lisa Givens, spokeswoman the Texas Workforce Commission.
The "pay-as-you-go" approach runs counter to the findings of a presidential commission that examined the issue of declining trust fund in the mid 1990's.
"Trust Fund inadequate reserves," the federal auditors said in a 1988 report.
It is now clear that the warnings were almost ignored. In contrast, states keep dismantle the trust funds, especially by reducing taxes for unemployment insurance at the request of the business community. Low balances quickly insolvency when the recession hit, which takes about 30 states to borrow $ 41,500,000,000 federal government to pay unemployment benefits to its growing population of unemployed.
The impact will be felt for years.
In the short term, states must find the money to pay the interest on loans. Usually involving a special tax on business until the loan is paid. Some states could benefit from general revenues, making it more difficult to pay for schools, roads and other public services.
In the long term, the state will have to replenish their unemployment insurance programs. That usually leads to payroll taxes higher, leaving companies with less money to invest.
recessions in the past have led to insolvency. Seven states borrow money in the decade of 1990, eight did so as a result of the 2001 recession.
But the figures are much worse this time because of the recession was more severe and the funds were already low when he arrived, said Wayne Vroman, an analyst at the Urban Institute, a liberal-leaning think tank based in Washington.
The Obama administration this month proposed giving states an exemption in the payment of interest on this fall. By the way, the administration increases the amount of wages that companies pay the federal unemployment tax. Many states are likely to follow his example as a way to boost depleted trust fund.
Companies pay a tax on federal and state payroll. The federal tax mainly covers administrative costs, the state tax paid by the regular benefits of a worker when they parted. The Treasury Department manages the trust funds of tax for each state.
Each state decides whether the unemployment fund has enough money. In 2000, total reserves of the states and territories came to about $ 54 billion. That was reduced to $ 38 million at the end of 2007, as the recession began.
During the next two years, the reserves fell to $ 11.1 million, lower than any time in program history when adjusted for inflation, the Government Accountability Office said in its latest report on the subject. However, the benefits have remained relatively flat or decreased in comparison with the average weekly wage.
"If you look from the employers point of view, no reservations will want to build too high, because then there is a growing risk that the advocates of expansion would benefit reserves point to high and say, 'We can see the afford to increase profits, "said Rich Hobbie, Executive Director of the National Association of State Workforce.
A review of government programs for unemployment insurance shows how states weakened their trust funds in the last two decades.
In Georgia, lawmakers gave employers a tax holiday of four years from 1999 to 2003. Employers saved over $ 1 billion, but reserves to the trust funds declined 40 percent to $ 700 million. The state has progressively increased its unemployment insurance taxes since then, but not enough to restore the trust fund to previous levels. The state began borrowing in December 2009. Washington must now about $ 588,000,000.
Republican Mark Butler, Georgia labor commissioner, said his state had the lowest unemployment insurance tax in the nation when the tax holiday was enacted.
"The decision to do this is not really based on any reasoIt practice was based on a political decision, which I think, by all accounts now, we can look back and say it was a wrong decision," Butler said. "Now we are in a situation where we had to borrow money and that puts everyone in a difficult situation."
In New Jersey, lawmakers used a combined approach to exhaust the trust fund. The Legislature extended the benefits and reduce taxes and spending $ 4,700,000,000 in income of trust funds to reimburse hospitals for indigent health care. The money was diverted for a period of 15 years and helps explain why the state trust fund fell from $ 3.1 million in 2000 to $ 35 million in late 2010. The state has had to borrow $ 1,750,000,000 from the federal government to keep the program afloat.
"It was a real abdication of responsibility and a complete lack of understanding of how to fund an unemployment insurance - to make sure you have enough money in bad economic times," said Philip Kirschner, president of the New Jersey Division Industry Association. "In times of economic boom that collects your bank account, but in New Jersey, said, 'Well, we have all this money, let's go."
California took its own path to the trust fund insolvency. Lawmakers kept the tax rates on the payroll of the same, but gradually doubled the maximum weekly benefit paid to workers laid off at $ 450. The average benefit is now about $ 300 and paid for 20 weeks.
Loree Levy, spokesman for the Department of Workforce Development California, said lawmakers were warned of the consequences.
"We testified in legislative hearings that the fund eventually go bankrupt and become a permanent state of insolvency, if the legislation was not approved to increase revenue," said Levy.
California has provided 9.8 billion U.S. dollars to keep the unemployment insurance payments flowing. Should the federal government interest payments of $ 362 million at the end of September.
In Michigan, unemployment decreased tax rates on insurance from 1994 to 2001. The trust fund prospered over the years due to a healthy economy and low unemployment. Then came the recession and released reserves. In response, lawmakers in Michigan adopted a law which reduced the amount of wages subject to unemployment taxes of $ 9,500 to $ 9,000. Increased the maximum weekly benefit of $ 300 to $ 362. The trust fund was reduced from 1.2 billion U.S. dollars to $ 112 million over the next four years. In September 2006, Michigan became the first state to initiate federal government loans.
Other states held their purpose trust funds off as part of an approach called "pay-as-you-go." Texas is a nationally recognized leader in this effort. His philosophy is that in the long term, it is better for the economy to keep the maximum dollars in the hands of corporations rather than the government. Texas had to borrow $ 1.3 billion in 2009. State officials do not repent of his policy.
"By keeping the minimum at (trust fund), Texas, is able to maximize the funds flowing into the Texas economy, which allows the creation of jobs and stimulating economic growth," said Lisa Givens, spokeswoman the Texas Workforce Commission.
The "pay-as-you-go" approach runs counter to the findings of a presidential commission that examined the issue of declining trust fund in the mid 1990's.
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