Six states and the District of Columbia could deplete the insurance funds they use to pay unemployment claims by the middle of the year if the recession continues to push up the number of jobless workers around the country, according to projections by the U.S. Department of Labor.
Officials of the department's Employment and Training Administration, which oversees the nation's unemployment insurance system, said Ohio, Michigan, Arkansas, West Virginia, Missouri and Minnesota could see their funds dry up in the next six months.
In addition, Connecticut ran out of unemployment insurance money last year and Massachusetts has notified the Labor Department it expects its fund to go broke within the next three months.
No matter what happens to the funds, however, no one eligible for unemployment insurance will be denied benefits. If a state runs out of money, the federal government will lend it enough to continue making benefit payments, as it has in past recessions.
The insurance trust fund for the District of Columbia has enough money to continue making payments at its current rate for the next 13 months. But a sudden sharp rise in D.C. unemployment could deplete the fund within five months, said the Labor Department. The fund has $83.2 million, according to the Labor Department, and ranks 48th out of 53 state and territorial trust funds in terms of solvency.
The Labor Department calculates the shorter time period by figuring out how fast the trust fund of a state would be depleted if it had to pay out benefits at the highest levels in the state's experience.
The Maryland fund has $578.5 million and ranks 33rd on the government's solvency list. At current levels, the Labor Department said, the Maryland fund can continue to make payments for 32 months. That number could be reduced to 8.5 months if high-cost figures come into play.
The Virginia trust fund has $733,650, enough to continue unemployment benefits at the current level for 58 months and 14 months at the high-cost level. Virginia ranks 19th in terms of solvency.
All of these individual state numbers are snapshots, however, and do not take future funding into consideration. Nor do they take into account state mechanisms for increasing business taxes in the event of a recession.
Combined, there is $40 billion in the states' basic unemployment insurance trust funds and another $7.3 billion set aside to pay for extended unemployment benefits. There is a separate $3 billion federal fund to help states that run out of money. If that fund is depleted, the federal government takes money from general revenue to lend to the states, an action that could increase the federal budget deficit.
The state funds are financed by unemployment taxes on business, so if the funds run out of cash, states will raise business taxes.
Unemployment benefits are an entitlement under federal law, meaning that money is automatically authorized to individual states, but the states set eligibility requirements and benefit levels, which vary widely. The standards are set under broad federal guidelines.
Therefore, not everyone unemployed is eligible for unemployment insurance benefits: In the District, for example, the unemployment rate is 6.9 percent, but the rate is only 2.3 percent for those eligible for unemployment insurance.
Nationally, the unemployment rate last month for those eligible for insurance benefits was 2.9 percent, compared with the 6.1 percent overall unemployment rate for the nation.
Despite the potential problems facing the seven states and the District, Carolyn Golding, deputy assistant secretary of labor for employment and training, said the insurance funds were in "pretty good shape."