The Unemployment Extension Depends Just as Much on the States as on the White House

Despite encouraging signs of growth in the economy the unemployment crisis is going to be with us for a long time to come. It has left states caught in a vice between plummeting revenues and rising needs.
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With unemployment topping 10.2%, and 50,000 Americans exhausting their unemployment benefits each week, President Obama is expected to sign a bill today to temporarily extend unemployment insurance payments. However the amount which families will be able to put toward the rent or the grocery bill from their unemployment checks depends as much on decisions in the state house as the White House.

Under federal law, all states pay 26 weeks of unemployment benefits for eligible beneficiaries, but some states have adopted lengthier benefits at their own expense. Over the past year Congress has passed extensions that offer up to 33 additional weeks of benefits depending on a state's unemployment rate.

With the current extensions set to expire on December 31, Congress has once again sent legislation to the president to extend benefits for a further 14 weeks in all 50 states and 6 extra weeks in high unemployment states.

Although the Recovery Act added an additional $25 per week to all unemployment checks through June 30, 2010, the big decisions on how much unemployed Americans can expect to receive in benefits are made in state legislatures. Some states have chosen to keep benefits low in order to ease the burden that unemployment insurance taxes place on employers, while others have made steady increases in their benefit levels.

Even among neighboring states the differences can be striking. An unemployed worker in Beaumont, Texas collects an average weekly benefit of $321 dollars while just down the road in Lake Charles, Louisiana the average benefit is $220.

However, the economic crisis has sent state unemployment insurance trust funds into a tailspin. So far, 24 states have had to borrow money from the Federal Unemployment Account to maintain their commitments to existing beneficiaries. While the Recovery Act has given states more time to pay off their loans, beginning in 2011 borrowing states will be required to pay back the money at 5% interest. States are increasingly faced with two equally unpopular options: raise taxes on businesses who are struggling to survive or limit benefits when they are needed most.

Indiana and Maryland have passed laws to raise taxes on employers beginning in 2010, and Virginia is considering raising employer taxes and cutting benefits to those who also receive social security. With states facing collective budget shortfalls of $350 billion over the next two years, many more states will be forced to trim the benefits offered to their citizens over the coming year. Here is a chart of our complete rankings:

States can top off their increasingly depleted trust funds with stimulus money if they "modernize" their unemployment insurance systems. This provision was added to the Recovery Act in one of the last legislative triumphs of the late Senator Ted Kennedy. Kennedy's provision included sweeteners -- to the tune of $7 billion -- for states who make their unemployment programs more accessible to part time workers who lose their jobs or to citizens who have to quit work to take care of a sick family member or as the result of domestic violence.

However, the program comes with strings attached. To qualify for short-term funding states have to permanently expand their unemployment systems and absorb long-term costs. Most states have qualified for full or partial incentive payments with many rushing to enact reforms both to help extend benefits to citizens in need and to maximize their funding eligibility. However, 19 states have yet to tap into the program, including 15 who have borrowed from the federal government just to keep their programs afloat. Unemployment modernization will likely be the only major element of stimulus funding to be rejected by a significant number of states.

Despite encouraging signs of growth in the economy the unemployment crisis is going to be with us for a long time to come. It has left states caught in a vice between plummeting revenues and rising needs. While we will likely see some grim months ahead as states cut programs to respond to a sea of red ink, the ultimate solution for both struggling families and faltering state finances lies in focusing on the job creating strategies which can deliver the jobs of tomorrow.

States may be uniquely squeezed by the current economic crisis, but they are also uniquely able to innovate in the face of adversity. Over the past two decades we have seen many states implement tax and regulatory reforms to nurture business expansion while others have doubled down on investments in higher education and research to fuel entrepreneurship. The current challenge may seem stark, but with 50 laboratories of innovation in our federal system the talent pool is deep.

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