State unemployment benefit system could crash

With unemployment remaining at extremely high levels and no apparent light at the end of that tunnel, unemployment insurance programs in many states are teetering on the edge of insolvency and surviving only on loans from the federal government. But with the expiration of a stimulus package provision at the end of the year, those loans have to then be paid back — something those states can ill afford. Politico reports:

With no end in sight to the nation’s high unemployment, the government program to help the jobless is heading for a crash.

And with Democrats and Republicans now divided over what used to be routine extensions of unemployment insurance benefits, there’s little prospect anytime soon for the sort of costly and complex rescue that’s necessary, according to one of the program’s champions.

“I am worried,” said Rep. Jim McDermott (D-Wash.), who got some temporary unemployment fixes in the $787 billion economic stimulus bill. “It is going to take a degree of bipartisanship … that we haven’t seen.” …

Democratic and Republican leaders alike say that helping the unemployed is a top priority. But critics say neither side has done enough to avert the looming insolvency of the outmoded unemployment system, which reaches less than half of the jobless and yet is shuddering under $40 billion in debt.

States, which have already raised employment taxes, will be forced to cut benefits even further next year without the kind of overhaul of unemployment insurance that has always seemed to slip off the congressional agenda, according to McDermott, who’s tried for years to modernize a program that has changed little since it was created in 1935.

The stimulus bill provided deferred-interest loans to states for that program, but only temporarily. That provision expires at the end of this year and next year the states have to begin paying the interest on those loans. Michigan will owe $150 million in interest to the federal government in FY 2011 unless that program is extended, something the state can hardly afford while facing a $1.8 billion deficit next year.

All told, the federal government has loaned some $65 billion to the states that they simply cannot afford to pay back while continuing to deal with record numbers of people using state social services due to the ongoing economic situation. And it looks as though getting a fix through Congress is unlikely at best.