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Published: Thursday, 7/3/2008

States' jobless funds at low level


WASHINGTON - The funds states use to pay unemployment benefits are running low, raising fears of higher taxes on businesses and less money to help out-of-work employees during tight economic times.

Thirty-three states have funds below recommended levels, meaning they're at risk of running out in less than a year unless they're replenished as required under federal law.

Nearly half the states could run out in less than six months.

The funds, totaling about $38 billion today, are in worse shape than before the last recession, when the total was about $54 billion.

"Many states have not built their unemployment trust funds back to levels adequate for even a mild recession," said Terry Shawn, a spokesman for the U.S. Department of Labor.

States can't skip paying unemployment insurance benefits to out-of-work employees, meaning they must borrow money if the funds get too low.

Finding the money to repay those loans can mean dipping into other state resources, hitting employers with surcharges, or eventually reducing the benefits provided to laid-off workers, which is allowable within limits.

The problem couldn't happen at a worse time for many states as the anemic economy continues to keep tax revenues low and pushes many statehouses into recession mode.

"A risk the system faces is cutting benefits when they're needed the most," said Wayne Vroman, Washington-based Urban Institute economist.

In Michigan, suffering from the nation's highest annual unemployment rate, the fund is at a paltry $2.8 million. The state has borrowed money to keep the fund in the black the last two fiscal years. In Ohio, the trust fund is at about $529 million, well below the state's recommended safety level of about $2.3 billion.

States with healthy unemployment funds are wary of making changes to the benefits they pay because of the effect on their bottom lines.

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