States' Unemployment Coffers Feel The Recession Squeeze

Kelly Wallace is a CBS News correspondent based in New York.
(AP / file)
Every day we're reminded of another example of the ripple effects of what looks to be the worst recession in a generation and how just when you think things can't get any worse, they do. I'm sorry to say our story tonight on the CBS Evening News with Katie Couric illustrates both points.

Consider your own checkbook for a moment and how there are times, probably a lot more lately, when you don't have enough cash in your account to cover all your bills. That's exactly what's happening in 30 states around the country when it comes to unemployment benefits. States – from New York to California – are running out of money and may need to get loans from the federal government to provide unemployment insurance to laid-off workers like 50-year-old Jennifer Sloan, a Web designer and manager in New York City. How much does she rely on her unemployment benefits?

"They're essential, I need them to buy my food, pay rent, that's the money that's keeping me going right now," she told us.

Michigan and Indiana have already run out of money for unemployment and have had to get loans from the federal government. Michigan has had to borrow more than $500 million. That's five-hundred million dollars.

What's wrong with this picture? Well, the loans to the federal government will eventually have to be paid back and with interest if they aren't paid back within a year of getting the funds.

Secondly, it's recommended that states keep at least one year of recession-level benefits on hand for economic downturns like the one we are experiencing this very moment – but many did not. They're supposed to be stocking money away for unemployment when times are good so they'll have plenty of money when times are bad. Kind of like all of us, right? But 30 states didn't save for a rainy day and now they and all of us are going to pay the price.

There is another big concern here. The more people on unemployment, the more money the state must fork over for unemployment benefits; the more people on unemployment, the fewer workers there are in the state. And the fewer workers in the state mean fewer dollars from taxes on employers which is how states fund the system in the first place. Since borrowing from the federal government is a costly way to go and really only a short-term solution, if the recession lasts for years, states might need to consider some really tough options – such as raising the tax on employers (not a welcome move during recessionary times) or paring down benefits (not a welcome move since many laid-off workers can't get by without the help).

States have borrowed from the federal government before for unemployment. It happened during previous economic downturns. The scary part though is never before have so many states had to borrow this early. And that's just another sign of just how bad this recession appears to already be.

But maybe, just maybe, there are a few bright spots we can focus on. Today, the Labor Department announced that first time jobless applications dropped slightly from last week which is a good thing, even though at 554,000 they are still at a level we haven't seen in some 26 years. And secondly, maybe, just maybe, our story will help Jen Sloan get a job. Attention! Attention! Web managers and designers – Jen Sloan may be just right for you!