When people talk about what bad shape public finances are in, they often focus on the burgeoning federal budget deficit and programs like social security and medicare.
But in many cases, it's fiscal problems at the state and local government level that matter most, at least in the short term.
If, for example, Defense Department spending is cut, it might undermine global security, but it might not mean your hometown is suddenly more dangerous.
However, if the local police department budget is slashed because income and real estate taxes are falling, the accompanying rise in crime will likely make you feel more insecure about walking around your neighborhood, especially after dark.
The same holds true in other areas, especially those that relate to social safety nets. In "State Jobless Benefits Reserves Low," Stateline.org's Pamela M. Prah details an area of concern that could turn out to be especially problematic at this point in the economic cycle.
More than a dozen states would be hard-pressed to provide unemployment benefits if the economy tailspins into a full-blown recession and more workers get pink slips.
Michigan, Missouri, New York and Ohio could face the biggest problems since the amount of money in their unemployment insurance reserves already are far below recommended levels while another 14 states could join this group if the job slump deepens.
“There is no cause for panic, but the situation is fairly worrisome,” said Andrew Stettner, deputy director of the National Employment Law Project, an advocacy group for the rights of low-wage workers, headquartered in New York City.
One way economists determine whether a state trust fund is solvent is if it has enough money to make unemployment insurance benefit payments for at least one year without collecting any additional revenue. These four states have just a few months of reserves.
If a state unemployment insurance trust fund runs out of money, unemployed workers would still get their benefits, but the state would have to borrow the money from the federal government and pay it back with interest. Such a scenario would burden those states that are already cash-strapped and borrowing heavily to balance their budgets without having to raise taxes.
“Obviously, states are looking at increased pressure concerning their state unemployment trust funds,” said Sujit CanagaRetna, a budget expert with the Council of State Governments.
States that are also well below the recommended level with only about six months of money in their reserves are: Arkansas, California, Illinois, Indiana, Kentucky, Minnesota, North Carolina, New Jersey, Pennsylvania, South Dakota, South Carolina, Tennessee, Texas and Wisconsin.
Unemployment insurance (UI) is a joint federal-state program that provides laid-off workers with a portion of their paychecks for up to 26 weeks. States administer the program, determining who is eligible for unemployment insurance, how much the benefit will be and the length of time benefits are available. The program is funded through federal and state employer payroll taxes.
Most states’ UI trust funds are less solvent now than before the 2001 recession, Stettner said, explaining that the boom years of the 1990s meant low unemployment levels and more UI payroll tax revenues paid into state trust funds.
Stettner figures that collectively states currently have UI reserves that are roughly half the levels that are recommended before a recession.
Whether the national economy is technically in a recession is a subject of ongoing debate — businessman and billionaire Warren Buffett, for example, recently said he believes the U.S. is already in a recession. The National Conference of State Legislatures recently concluded that some states’ fiscal situations have deteriorated so much that they appear to be in a recession.
The faltering economy has helped to put 7.6 million workers in state unemployment lines, up from 6.8 million from a year ago. Just in the first three months of this year, 732,710 workers have exhausted their state benefits without finding jobs.
The unemployment rate is currently at 5 percent, up from 4.5 percent from a year ago, and many experts expect the layoffs to continue. The Federal Reserve May 21 predicted the unemployment rate would rise between 5.5 percent and 5.7 percent by the end of this year, up from the Fed’s forecast of 5.3 percent in January.
Unemployment rates range from the low of 2.6 percent in both South Dakota and Wyoming to Michigan’s 6.9 percent, the highest. States with the next highest rates are Alaska (6.7 percent), California (6.2 percent) and Rhode Island (6 percent), according to the U.S. Labor Department’s latest figures released May 16.
Most states’ UI trust funds weathered the 2001 recession, first because they went into the recession with more reserves than they have now. But Congress also helped in 2002 by transferring $8 billion from the federal UI trust fund to the individual state UI accounts.
Congress is once again considering helping states cover UI claims, but the measure has drawn a veto threat from President Bush, who has said such a move is too costly and premature.
Before recessing for the Memorial Day holiday, the U.S. Senate passed, by a veto-proof margin, a measure that would extend unemployment benefits by 13 weeks for all workers and provide an additional 13 weeks for workers in high unemployment states. Unlike traditional UI benefits that are financed through federal and state payroll taxes, the federal government would pay for all of the extended UI benefits, estimated to cost $11 billion.
The measure, which was attached to the war supplemental appropriations bill, returns to the U.S House and must pass by a two-thirds margin to override Bush’s threatened veto.
Opponents of extending UI benefits say that the current 5 percent unemployment rate is still lower than the 5.7 percent rate in 2002 when Congress last extended UI benefits and gave the states $8 billion. Worker advocates, however, say today’s economy is growing at a much slower rate than 2002, and the percentage of the labor forces that is considered “long-term unemployed,” or without work for six months, is the same today as it when Congress extended UI benefits in the last recession.
The nation’s governors and state lawmakers have called on Congress to extend unemployment benefits and to give states more money to help administer more UI claims, according to letters to Capitol Hill this month.
Worker-advocate groups likewise are calling for the extension. “The economy is in at least as precarious a position as it was the last time Congress extended unemployment insurance benefits during the last recession,” said Heidi Shierholz, an economist with the Economic Policy Institute.
Some, however, argue that extending UI benefits now would be a mistake. “It’s far too early to tell what and where the effect of the uncertain economy will be felt most,” Pete Sepp, spokesman for the National Taxpayers Union, which advocates tax cuts.
James Sherk, a labor expert at the Heritage Foundation, agreed, adding that six months of taxpayer support is enough time for most workers to find new jobs. He called extending UI benefits now “a political move that is not justified on its merits.”
So, of course we have to terminate policemen and firemen first. They're certainly not essential.
No thought is ever given to firing a few layers of useless bureaucrats. Or just cutting down on the frequency of road-paving projects. Oh no ! BAH !!
Posted by: sysin3 | June 03, 2008 at 06:41 PM
Personally, I would suggest cutting DOD spending, in the face of the naked aggression exhibited by the war-mongering US presidential administration and Congress, might in point of fact increase "global security."
Posted by: farang | June 05, 2008 at 08:01 AM