New York, Texas Seek Jobless Aid From U.S.New York, Texas 
Seek Jobless Aid From U.S. 

$1.5 Billion Needed To Pay Out Benefits 

By Kirstin Downey Grimsley
Washington Post Staff Writer
Friday, February 1, 2002; Page E01 

Unemployment insurance funds in Texas and New York will be depleted in the next 
few weeks unless the federal government provides more than $1.5 billion in 
loans, state officials said yesterday.

Texas plans to ask the U.S. Labor Department next week for between $800 million 
and $1 billion. New York is seeking $740 million -- including $90 million to 
keep its fund from going broke this month.

Both states plan to repay the loans by raising unemployment taxes paid by 
employers. Texas plans to double its tax rate.
Larry Jones, a spokesman for the Texas Workforce Commission, said the state 
expects to get the loans, and no workers will be left empty-handed. But, he 
said, the state will need to pay the loan back with interest.

New York made its request early this week, according to U.S. Labor Department 
officials and Betsy McCormack, a spokeswoman for the New York State Department 
of Labor. Separately, New York is also seeking about $280 million from Congress 
for jobless benefits for workers affected by the Sept. 11 terrorist attacks.
Both states cut their unemployment tax rates during the prosperous 1990s. Now 
that a recession has hit, there is not enough money in the funds to continue 
making payments to unemployed workers, according to officials and unemployment 
insurance experts.

Texas has had layoffs at major employers, including Enron, Motorola and 
Texas-based airlines; New York's economy remains damaged by the effects of the 
Sept. 11 attacks. Still, those states are generally healthier than many other 
parts of the country. The unemployment rate in New York is 5.8 percent, the same 
as the national rate. In Texas, it is 5.7 percent.

Wayne Vroman, an economist with the Urban Institute, said the unemployment 
insurance woes in Texas and New York are "a direct consequence" of their tax 
policies.
"Even if September 11 hadn't occurred, New York would be facing a similar 
problem as Texas," Vroman said. "September 11 just adds to the problem."

The federal government is expected to give the states the money, as it has to 
other states that have fallen into severe financial distress in recent decades, 
to protect workers who might otherwise be left in the lurch. Almost half the 
states sought federal funds in the mid-1970s. Some did again in the early 1980s, 
and the District and six states, including Michigan, New York and Connecticut, 
asked for federal help in the early 1990s.

Since the early 1980s, the federal government has charged interest -- now about 
6.3 percent a year -- for the privilege of borrowing the money, which will come 
from federal unemployment trust funds. But, with rising unemployment and growing 
economic distress nationwide since Sept. 11, many politicians and government 
officials around the country were eyeing those funds to expand or lengthen 
unemployment insurance benefits.

Most states follow solvency benchmarks established by the U.S. Labor Department, 
and their trust funds remain secure, unless unemployment rates worsen 
significantly. Maryland, for example, has an adequate financial cushion. And 
some jurisdictions, such as the District and Virginia, have been able to 
temporarily increase benefits payments because of surpluses created during the 
prosperous years, without risk of insolvency.

"Most states are prepared for a recession because they followed a policy of 
building up reserves in good times," said Richard A. Hobbie, unemployment 
insurance director for the National Association of State Work Force Agencies.

The underlying premise of the unemployment insurance system, created after the 
Great Depression, was that recessions are a recurring part of a modern 
industrial economy. The intention was to use the surplus from prosperous times 
in bad times, to give jobless workers money to pay for medicine and food and to 
keep their creditors paid, thereby avoiding a chain of bankruptcies.

The philosophy is different in Texas, New York and a few other states, which cut 
taxes in prosperous times because unemployment benefits are not as much in 
demand and raise taxes if funds are depleted.

"We feel that money is better off circulating in the economy than sitting in a 
fund somewhere," said Jones, the Texas official. "It's a long-standing 
philosophy in Texas" to handle the funding like that, he said.
"New York and Texas have only themselves to blame" for their problems, said 
Maurice Ensellem, public policy director of the National Employment Law Project, 
a worker advocacy group.

Ron Byrd, chief economist of the Employment Policy Foundation, said that the 
Texas and New York situations are exposing some deep-rooted problems in the 
unemployment insurance system. But he said that rather than blaming those 
states, it would be better to make sure that the system is reformed and that 
workers are protected.
© 2002 The Washington Post Company 


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