Businesses pay money into state unemployment trusts; the amount businesses pay into the trust is based on a formula that includes the company's history of layoffs.
Due to several reasons, state unemployment trusts are depleting very, very quickly. The reasons include:
- In some cases, states cut back on unemployment taxes for political reasons, not practical reasons
- This recession has been deeper and longer than usual
- The recession has resulted in a larger number of unemployed than usual
- The trusts' investments tanked along with the general downturn of the market
- States increased benefits during good times -- but they continue even in bad times
- 1990s: seven states needed to borrow money from the federal government to meet obligations
- 2001: eight states needed to borrow money due to the recession
- 2000: total reserves for the 50 states and territories came to $54 billion
- 2007: $38 billion
- 2009: $11 billion -- lowest in the program's history when adjusted for inflation
- Georgia has already started borrowing money due to political decisions in the past, including a four-year tax holiday for employers (1999 - 2003) when businesses were doing well, and the trust fund was bulging
- New Jersey: the fund has dropped from $3 billion to $35 million. NJ expanded benefits, cut taxes when things were good; NJ even diverted unemployment trust funds to pay hospitals for indigent care
- California: kept payroll taxes the same, but gradually doubled the maximum weekly benefit. California has now borrowed $10 billion to meet obligations; California owes the federal government $360 million in interest payments by the end of September -- that's just the interest -- there's still that pesky $10 billion principal
- Michigan: first state to start borrowing from the federal government, when they started borrowing back in 2006 (that's five years ago); Michigan had also cut payroll taxes and increased benefits
- Texas: one of the best run unemployment trust funds, but Texas also had to borrow $1.3 billion in 2009
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