Fallout: The Financial Crisis

State unemployment funds go bust

Mitchell Hartman Jun 4, 2009
Fallout: The Financial Crisis

State unemployment funds go bust

Mitchell Hartman Jun 4, 2009


Kai Ryssdal: By this time tomorrow there’s a pretty good chance the unemployment rate is going to be somewhere north of 9 percent. We’ll get the details from the Labor Department in the morning, along with the actual number of jobs the economy lost last month.

People that get laid-off are supposed to have a safety net to help tide them over after they’re put out of work. But unemployment insurance isn’t working that way in this recession. There are so many Americans getting jobless benefits that a lot of state trust funds are going broke or they’re heading that way. In collaboration with the investigative newsroom ProPublica, Marketplace’s Mitchell Hartman has the final part of our series on unequal unemployment.

EMPLOYMENT CENTER: Anybody on this line filing for the first time? Anyone just looking for work? Anybody just dropping their slip?

MITCHELL HARTMAN: It’s a busy Tuesday morning at South Carolina’s one-stop employment center in Columbia. Though, to tell the truth, it’s been pretty busy ever since the economy turned bad.

I’m here to meet Jimmy Jones of the state’s Employment Security Commission. Jones says the problems started 18 months ago.

JIMMY JONES: When we were paying out roughly $5 million a week and suddenly it jumped to $10 million a week in benefits, and the more we paid out the less money we had in our trust fund.

In fact, they drained the trust fund dry. Since January, the state’s had to borrow from the federal government to keep paying benefits. This rapid descent into insolvency is the talk of the capital. People in Columbia want to know who to blame, and how to pay the bill.

KENNY BINGHAM: We are currently at $300 million that we’ve already borrowed from the federal government.

Kenny Bingham is Republican majority leader of the South Carolina House. He says the debt could hit a billion by the end of the year.

BINGHAM: That money has to be paid back, and it’s going to be paid back by the businesses of the state of South Carolina. I don’t know whenever we’ve ever had a billion-dollar tax increase, but we’re fixing to have that.

So, why is this on the backs of employers?

Well, employers pay the taxes that fund unemployment insurance. States set the tax rates. And lawmakers are often under pressure from business to keep those taxes low.

And that’s just what happened here. Remember the “ants and grasshoppers” fable? South Carolina’s a grasshopper; it failed to save for an economic winter. Back in 2000, its trust fund was more than $800 million in the black. Business leaders worried that money, money collected from employers would be diverted to pay for other state programs. So the legislature cut taxes, and the unemployment fund headed down, down, down.

To be fair, there are lots of grasshoppers out there. Indiana, California, New York — they’re all deep in debt. Like South Carolina, many only tax the first $7,000 in wages, a level set decades ago.

The state of Oregon taxes the first $31,000 in income. It’s the “ant” in our fable.

TIM NESBITT: Right now we have about $1.4 billion in our fund.

Tim Nesbitt is deputy chief of staff to the Oregon governor.

NESBITT: That means that we can continue to pay benefits for another year at this rate.

So Oregon’s in fine shape, even though it has a 12 percent unemployment rate, which is worse than South Carolina’s. Plus, ever-antish, when times are good, Oregon increases taxes automatically, filling the trust fund. That way, taxes on business can actually be lowered in times like these, when more people are hitting the unemployment lines.

And there’s plenty of pain to go around. Oregon is facing huge budget cuts to programs like health care and education, and advocates have been out at the Capitol building in Salem protesting.

But unemployed people aren’t facing any cuts right now. In fact, that huge surplus in the unemployment trust fund is a juicy target for politicians. The governor wants to tap it to provide emergency summer jobs for the unemployed. Business leaders don’t like the idea. JL Wilson of Associated Oregon Industries, says this is employers’ money, and it comes at a cost.

JL WILSON: There’s a lot of grumbling about the expense of the state’s unemployment system. But on the flip side you have to look at, our fund is relatively well-managed and quite simply, it’s not broke.

That’s our cue back to South Carolina, which is broke. And, getting broker.
The state’s troubles may make it harder for people like Clorene Jones.

I met her in Greenville, an old industrial town. Like many I talked to, she’s finding it takes longer to land steady work in the textile mills. She’s been laid off twice in the last year.

CLORENE JONES: Well, I’d worked for the same company, but the other plant I worked for it closed down. And then I went to work for one of their other companies, and it closed down too.

South Carolina’s leaders, meanwhile, are sparring over how to save the system, and pay down its mounting debt. Everyone agrees business will have to pay higher taxes, eventually. But before that happens, the unemployed are likely to see their benefits cut. And legislators are demanding that people who’ve been fired for misconduct — things like drinking on the job or stealing from the boss — be kicked off the rolls.

EMPLOYMENT CENTER: We have to contact your employer, make sure it was a layoff, and all that. So I’m not sure where your check is going to be.

Back at the Employment Security Commission in Columbia, Jimmy Jones says the state will have to do something, and soon.

JONES: We have talked about increasing the disqualifications of people who were discharged. We do not deduct for Social Security, which could be done.

That means people’s unemployment checks would be reduced by the amount they receive in Social Security benefits. And mill-worker Clorene Jones? Well, she’s in her 70s and on Social Security. So she’d be getting even less than she does right now to live on, from the State of South Carolina.

I’m Mitchell Hartman for Marketplace.

RYSSDAL: Thanks to Olga Pierce at ProPublica for her work on this story. To find out whether your state still has anything left in its unemployment account, ProPublica’s put together an interactive map.

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