State Unemployment Funds Going Bankrupt in Recession

The recession has sent 25 state unemployment funds into bankruptcy, and the Department of Labor predicts the number will reach 40 in the next two years, the Washington Post reports. States whose jobless funds have already dried up have borrowed $24 billion from the federal government to cover the gaps, and a total of $90 billion will be needed to keep the funds operating by 2011.

Unemployment programs are funded by a payroll tax on employers and collected at a rate that is supposed to keep them solvent, but low-business-tax movements have made them unsustainable. The shortfalls have led to debates in South Carolina, Nevada, Kansas, Vermont and Indiana over cutting and delaying benefits or raising payroll taxes, the typical solutions for an underfunded unemployment fund. But neither option is attractive to already pressed state governments; industry and business groups lobby against taxes while unions and other worker groups protest benefit cuts.