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Few fixes for Florida's insolvent unemployment benefits fund

It's like sipping through a straw to put out a raging fire.

The fund that Florida uses to pay unemployment benefits officially ran dry this week. A victim of under­funding, it became overwhelmed by the prolonged recession and the pressure to meet benefit needs brought on by the state's 10.7 percent jobless rate.

A year ago, Florida's unemployment insurance trust fund sat fat and happy with $1.9 billion in its coffer. The fund dipped to $1 billion by March, $449 million by July and zilch on Monday.

"Florida's program is stingy, because it pays the unemployed so much less than the national average, and it's strict because it refuses benefits to a greater number of the unemployed than the national average," says Rick McHugh, a staff attorney with the National Employment Law Project in Ann Arbor, Mich. "And yet it still managed to become insolvent, because its leaders lack the political will to fix it."

The result? Florida is now borrowing from the federal government — a lender hardly flush with money — to keep close to half a million unemployed Floridians receiving an average of $240 a week for up to 26 weeks. The state will borrow, interest free, $300 million this month and up to $310 million in September.

Beyond that, nobody knows. But it looks unlikely any windfall will appear to revitalize the state fund in the near term.

With the state unemployment rate at heights not seen since the mid 1970s, Florida's predicament is cruel but not unique. Michigan and California — with unemployment rates topping 15 and 11 percent — already have borrowed $2.4 billion and $2.6 billion from the feds. At least 18 states have run out of funding to cover unemployment benefits for their residents. Total borrowings already exceed $13 billion, and experts say 30 or more states could eventually be forced to ask for federal money.

The precise number of states and the size of the overall borrowing will depend on the economy. If the country suffers a slower than anticipated recovery — with unemployment rates rising further or remaining stubbornly high — state dependence on federal funds to cover jobless benefits could increase even more.

Right now, the unemployment trust funds are getting hit at both ends. More people are tapping the benefits, at the same time that fewer and smaller companies are paying the taxes that support the funds.

So far, nobody seems to be looking too far ahead for a fix. The basic options to replenishing state funds are to raise taxes on businesses to rebuild the funds or cut the benefits now provided.

Indiana's jobless reserves ran out last year and the state chose, despite the recession, to raise its unemployment taxes on businesses by 35 percent.

Florida's unemployment reserve is funded by one of the country's lowest tax assessments, starting at 2.7 percent, and that is paid on only the first $7,000 of an employee's wages.

Starting next year, Florida businesses have agreed to a modest increase. Tammy Perdue, counsel with the Tallahassee lobbying group Associated Industries, says it will mean about an extra $100 a year in taxes levied on a 20-employee firm.

Will that be enough? If it isn't, Perdue says businesses will go back to the negotiating table.

"It's not a great situation," Perdue says of the Florida fund's insolvency. "Businesses did not want to lay off people. It's important that those who are unemployed get benefits."

McHugh said Florida's attempt to fix the fund is inadequate. States like Washington and Oregon not only have solvent unemployment insurance funds, but pay more competitive benefits because they impose taxes that increase as state wages rise.

Florida pays its unemployed about $60 less each week, or $240 less a month, than the national average. And the state has stricter eligibility rules, paying only 32 of every 100 unemployed in the state, compared to the national average of 37 of every 100 who lost their jobs.

"Stingy and insolvent," McHugh says. "That's doubly irresponsible."

Robert Trigaux can be reached at trigaux@sptimes.com.

Few fixes for Florida's insolvent unemployment benefits fund 08/26/09 [Last modified: Monday, August 31, 2009 1:52pm]
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