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Stock Ideas Investors Daily Edge Are Unemployment Benefits In Danger?
Stock Ideas Investors Daily Edge Are Unemployment Benefits In Danger? 
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by Adam Lass, Market Analyst, WaveStrength Options Weekly Sometimes strange things happen. For example, if the wags at the water cooler tried to tell you back in August that Eli Manning would go deeper into the playoffs than big brother Peyton, you’d have laughed hot coffee out your nose. |
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| Are Unemployment Benefits In Danger? |
| Friday, 10 October 2008 | ||||||||
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As I write this, very early Thursday morning, I am amazed that one of the biggest economic stories of the year remains woefully neglected… grossly under reported. The demand for unemployment benefits across the country has put a strain on state unemployment funds. Word is that the funds in as many as 10 states face insolvency in 2009. Unemployment’s dramatic spike – nationwide, reported unemployment reached 6.1%, or roughly 9.1 million people, in August – has left California, Michigan, Missouri, New York, Ohio, South Carolina, Wisconsin, Indiana, Kentucky and Arkansas with less than six months’ worth of unemployment trust fund reserves. That puts their funds at high risk of insolvency. On Tuesday, California state officials told lawmakers in a hearing that their unemployment reserve fund was on track to run dry by March. That dire forecast is based on the state's current unemployment rate, which hit 7.7% in August. Last month, South Carolina Employment Security Commission chief Ted Halley said his state’s fund was projected to run out by January. As of August, the state’s unemployment rate was 7.6%. The other eight states are on the cusp, based on a formula that projects the amount of money the state would need in a recession. Trust fund revenue comes from payroll taxes on employers, based on a tax system set at the state level. But, as the amount paid out in unemployment claims has risen, the terms set to generate revenue largely have remained static. That combined with the current economic downturn has created a climate that economists say many states are ill-equipped to bear. But, these funds can be bailed out. When reserves run dry, states can borrow from the federal government’s unemployment trust fund. Typically, states have a year to repay the loan without accruing interest. Michigan, which has the country’s highest unemployment rate, at 8.1 percent, is already borrowing from the federal government, even though it is not in the red just yet.
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