State Asks Government for Unemployment Loan

October 9, 2008 8:46:06 PM PDT
It's one of those domino effects in an already stretched-thin economy. California has more and more people without a job, putting the state in a position to pay out more and more in unemployment benefits, money it simply doesn't have.

With the state's jobless rate approaching a 12-year high of eight percent, California's unemployment insurance fund is paying out as much as $27 million in benefits a day. Labor officials are warning the fund could be in the red by January.

"It is running low. We are projecting that the fund will go broke in early 2009," says Michele Sutton-Riggs, from California's Unemployment Insurance Program.

The money is running out so quickly because the unemployment rates are much higher than projected. The state has asked the federal government for a loan that could probably float the fund until next fall. Still, for the million and half Californians collecting unemployment checks, it's an uneasy feeling to know their only lifeline is on shaky ground.

"It's getting harder by the day. A lot of people are talking about it. Nobody's willing to put their hands out anymore," says Elaine Ramirez, an unemployed single mom.

Lawmakers are already looking for ways to restore the fund's financial health. One idea is to boost the payroll taxes on companies. Company contributions to unemployment are based on annual pay.

In Washington state, employers are taxed on the first $31,000 each worker earns. In Oregon, it's the first $30,000 while in Nevada, it's the first $24,000. California companies pay only on the first $7,000, the minimum allowed under federal law. Businesses don't like the idea because they say they're already heavily taxed.

"They do not have the ability to expand, grow and provide jobs. So it is another cost to employers in the state," says Jason Schmelzer, from the California Chamber of Commerce.

Other proposals include cutting unemployment benefits. The average now is a little over $300 a week.

None of the ideas are popular, but if the state resorts to a federal loan, the interest on that could cost California taxpayers $100 million. However, that's an additional burden the state can't afford.


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