Michigan first to act as states weigh reductions in unemployment benefits

Michigan moved Thursday to significantly cut its unemployment program, becoming the first of what could be a flurry of debt-laden states to reduce aid even as high jobless rates persist.

The Michigan measure reduces the maximum period a person can receive state unemployment benefits from 26 to 20 weeks, the lowest in the nation, officials said. Gov. Rick Snyder (R) indicated Thursday that he would sign the bill.

The state’s economic troubles, aggravated by the recession and its shrinking manufacturing base, have turned Michigan into a bellwether of bust. Its unemployment rate stands at 10.7 percent — one of the worst in the country.

The move comes as other Republican-dominated legislatures, including Florida’s, are weighing similar efforts to restrict payments to the jobless, and states such as Wisconsin, Ohio and Indiana are implementing far-reaching, controversial plans to close budget gaps.

Although critics have decried the benefit reductions during a time of high joblessness as part of a political “war on the unemployed,” advocates of the cutbacks say they are necessary to ease the burden on employers, who pay for the programs through a payroll tax.

The cost of providing unemployment payments rose rapidly as the jobless ranks grew with the recession. Some states, including Michigan and Florida, face multibillion-dollar debts as a result, according to Labor Department estimates.

When state unemployment funds are depleted, they borrow from the federal government. Michigan owes the federal government $3.9 billion for the program. By comparison, the state’s proposed budget for next year is $45.9 billion.

“If we don’t solve the deficit problem, there won’t be any benefits for anyone,” said Wendy Block of the Michigan Chamber of Commerce, which lobbied for the bill. “This insures that employers won’t be taxed through the roof for unemployment benefits.”

Opponents, however, argue that it makes little sense to reduce benefits now when many Americans are finding it difficult to get work. The nation’s jobless rate stood at 8.9 percent in February, and nearly 44 percent of the country’s jobless have been out of work for more than six months, according to the Labor Department.

Moreover, opponents fear that Michigan’s approach on unemployment benefits could be copied by other states with energized Republican majorities, just as the collective-bargaining restrictions approved in Wisconsin have been entertained by other states.

“This is frightfully shortsighted for the individual families,” said U.S. Rep. Sander M. Levin (D-Mich.). “It turns back the clock on 50 years of these benefits. What concerns me is that it could go viral.”

Since the 1950s, nearly every state has offered at least 26 weeks of unemployment insurance.

Federal measures enacted in response to the recent economic downturn extend those benefits to as long as 99 weeks in states with the highest jobless rates – the longest period since the program’s inception. The extended federal benefits expire in January.

Most state unemployment funds have been depleted, and they are now borrowing from the federal government to make their portion of the payments.

The shortfalls can be traced to a failure during the economic boom to properly prepare for a downturn, experts said.

Unemployment benefits are funded by a payroll tax on employers, collected at a rate that is supposed to keep the funds solvent. Firms that fire lots of people are supposed to pay higher rates. Over the boom years, the drive to minimize state taxes on employers reduced revenues, and when the ranks of the unemployed grew during the crisis, the funds could not meet the need.

Collectively, the states owe the federal government $46 billion for the shortfalls in their unemployment funds. Those deficits put pressure on the states to reduce benefits or raise the payroll taxes.

This month, the Florida House approved a measure reducing the maximum benefit period from 26 to as little as 12 weeks while curbing increases in unemployment taxes paid by employers. The jobless rate in Florida is 11.9 percent.

“We are sending a message to the business community that Florida is quickly becoming the most business-friendly state in the country,” said state Rep. Doug Holder (R-Sarasota), the sponsor of the Florida bill.

It would go into effect Aug. 1.

In Arkansas, lawmakers are moving toward freezing unemployment benefits levels while trimming the maximum benefit period for state benefits from 26 to 25 weeks.

“The more that states look at the severity of the solvency problems, the more measures like this will be seriously considered,” said Douglas Holmes, president of UWC, an organization that provides advice on unemployment policy to businesses and some states.

The federal extensions — the latest one pushed forward by President Obama in December — have led to criticism that the unemployment program has morphed from a temporary bridge for laid-off workers into an expensive entitlement, a critique that angers advocates for the unemployed.

“We have had such high unemployment for so long, people maybe don’t have as much sympathy for the jobless as they did in 2008 or 2009,” said Rick McHugh, a staff attorney with the National Employment Law Project.

Pointing out that the maximum unemployment benefit in Michigan is $362 a week and $275 a week in Florida, McHugh added that it is unlikely that many people are financially comfortable just collecting unemployment benefits.

The Michigan measure was part of a bill that was necessary to ensure jobless people could receive a 20-week federal extension of unemployment benefits, the governor’s office said. Without it, about 35,000 people would have lost their benefits as of April 1.

A spokesman for Snyder said that he will sign the bill because it ensures that presently unemployed workers will continue to get benefits but that he would have preferred not to reduce the maximum benefit period.

“This makes sure we have that lifeline still in place,” Snyder spokeswoman Sara Wurfel said. “It was a necessary compromise. The votes to do anything else weren’t there otherwise.”

Peter Whoriskey is a staff writer for The Washington Post handling investigations of financial and economic topics.
Michael A. Fletcher is a national economics correspondent, writing about unemployment, state and municipal debt, the evolving job market and the auto industry.
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