States Borrow to Fund Unemployment Benefits
[Guest post by DRJ]
CNN reports 33 states have borrowed from the federal government, and 4 more will likely have to borrow, in order to fund unemployment benefits:
“With unemployment still at a severe high, a majority of states have drained their jobless benefit funds, forcing them to borrow billions from the federal government to help out-of-work Americans.
A total of 33 states and the Virgin Islands have depleted their funds and borrowed more than $38.7 billion to provide a safety net, according to a report released Thursday by the National Employment Law Project. Four others are at the brink of insolvency.”
The 33 states are listed at the link, led by California’s borrowings of $8.40B and 7 other states including Texas with $2-3B in loans each. Only 13 states may be able to weather the storm without borrowing:
“Instead, they adopted a “pay as you go” approach, keeping taxes and fund levels low during good times and raising taxes and cutting benefits when strapped for cash. That left many states with insufficient jobless funds to weather the recession.
Of the 13 states that will likely be able to fund jobless benefits without borrowing from the feds, 10 of them followed the recommended financing tactic. That readied them for the recession, the National Employment Law Project concluded in its study.”
Texas’ loans and apparently all loans are interest free until January 2011 — thus encouraging States to avoid raising employers’ taxes or issuing bonds to restore adequate funding for jobless benefits while the recession continues. California is expected to borrow as much as $15 billion:
“The runaway “winner” [for worst shape] is California, which has borrowed $8 billion. There was a stretch of time last year when they were borrowing $30 million a day to pay unemployment benefits. By the end of the recession, it’s projected they will have borrowed $15 billion.
The stimulus bill extended the interest-free grace period for states to borrow money – they have until the beginning of 2011 to start paying this money back – but there is no way California can pay that back by then. And the federal government will charge interest – probably between 4 and 5 percent. So that’s hundreds of millions of dollars a year just on interest. And the way the rules work is you cannot pay interest from unemployment insurance taxes – it has to come out of state budgets.”
Add to that the cost of funding ObamaCare for uninsureds — or as Democratic Governor Phil Bredesen calls it, the Mother of All Unfunded Mandates — and the States face a gigantic fiscal crisis. Is it any wonder Obama doesn’t mind a Republican Congress in 2010? He wants someone to blame in 2012.
— DRJ
DRJ – Meanwhile, Bill Lockyer, Treasurer of California, embarrasses himself in a letter to Goldman Sachs complaining about the poor treatment the market accorded a recent offering of California General Obligation bonds.
http://www.treasurer.ca.gov/cds/goldman.pdf
daleyrocks (1feed5) — 4/11/2010 @ 10:45 pmwell, this is all Bush’s fault anyway….
/channeling my inner snips 😀
redc1c4 (fb8750) — 4/12/2010 @ 12:22 amFrom daleyrock’s link:
It’s not often you run across something that’s really funny and really sad at the same time. This is one of those times.
DRJ (daa62a) — 4/12/2010 @ 12:36 amLet’s see here . . . Illinois is near the top of the list, Arizona is near the bottom, and Alaska isn’t on the list at all.
Hmmm . . .
Icy Texan (ca2c5a) — 4/12/2010 @ 12:52 amDoesent anyone find this somewhat creepily simular to the borrowing to play the stock market frenzy in the roaring 20’s that destroyed the banking system?
EricPWJohnson (e35680) — 4/12/2010 @ 2:00 amMaybe our vaunted media will one day speak of
Typical White Person (93120c) — 4/12/2010 @ 7:44 amUnfunded Liabilities which are in the tens of trillions and ignored.
Maybe our vaunted media will one day speak of
Typical White Person (93120c) — 4/12/2010 @ 7:44 amUnfunded Liabilities which are in the tens of trillions and ignored.
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