States Made Unprecedented Cuts to Unemployment Insurance in 2011

National Employment Law Project

Without Federal Intervention, Unemployed May Face Deeper Cuts in 2012

Washington, DC—State lawmakers in 10 states used the 2011 session to push through a range of unprecedented cuts and new restrictions in their unemployment insurance programs, according to an analysis of state legislation released today by the National Employment Law Project. Some of the most severe cuts occurred in states hit hardest by unemployment and the recession.

“It’s disconcerting that these lawmakers would expend so much energy making cuts to state unemployment insurance programs when more people are out of work for longer than any other period on record,” said Christine Owens, executive director of the National Employment Law Project. “Rather than adopting responsible financing practices and doing the hard work of fostering job creation, far too many state lawmakers have taken the easy out of cutting workers’ unemployment insurance benefits.”

Most states will require federal legislation to restore the solvency of their unemployment insurance programs, avoid sudden tax hikes on employers, and maintain the unemployment insurance programs for out-of-work Americans. President Obama included a proposal in his FY 2012 budget, and Senator Durbin introduced the Unemployment Insurance Solvency Act of 2011 (S.386) earlier this year. NELP issued a proposal in February.

NELP’s new analysis shows that in 2011, six states cut the maximum number of weeks that jobless workers can receive unemployment insurance to less than 26 weeks—a threshold that had served as a standard for all 50 states for more than half a century, until this year. Michigan, Missouri, and South Carolina cut their available weeks down to 20; Arkansas and Illinois cut down to 25; and Florida cut to between 12 and 23 weeks, depending on the state’s unemployment rate. Double-digit unemployment in Michigan, South Carolina, and Florida did not discourage lawmakers there from making the cuts.

Other states slashed weekly benefit amounts or instituted onerous eligibility requirements meant to discourage workers from applying for benefits. Indiana changed the formula it uses to calculate weekly benefit amounts so that the average unemployment check will drop from $283 to $220 a week. Starting in August, claimants in Florida must take a 45-question online skills-assessment before they can receive a first payment, and then must provide documentation that they have contacted at least five employers for each week they file for benefits.

“Instead of enacting policies to create good jobs and restore their unemployment insurance systems to solvency by adequately financing them, these state lawmakers are choosing to make the unemployed jump through hoops of red tape,” said Owens. “These kinds of bureaucratic hurdles are offensive and make little sense. They buy into and perpetuate false and degrading assumptions about unemployed workers. And they add unjustifiable and huge costs and burdens to already-challenged state programs.”

Throughout the recession, states with inadequate unemployment insurance trust fund reserves have relied on loans from the federal government to pay state unemployment insurance benefits. This September, states will begin paying interest on these loans, and starting in 2012, the federal government will raise taxes on employers in borrowing states until loans are paid in full, as required by the law. State lawmakers have used the loans to justify cuts to state unemployment insurance programs when, in reality, today’s borrowing is the inevitable outcome of irresponsible financing that left states unprepared for a serious economic downturn.

NELP’s report identified five states that, despite financing troubles, took the opportunity to cut employer taxes by either canceling or delaying automatic increases that were designed to help states replenish unemployment insurance reserves. Only Colorado and Rhode Island addressed the underlying cause of the solvency crisis, enacting increases in employer contributions. The rest favored short-sighted actions that put the burden on unemployed workers and their families while threatening the stability of state economies.

“Responsibility for the necessity of state borrowing falls squarely on the shoulders of state lawmakers and lobbyists who insisted on massive business tax breaks even when corporate coffers were flush and states’ balance sheets were positive. At a time when U.S. corporations are stockpiling cash, it’s outrageous that state lawmakers have the audacity to make jobless workers pay for decades of irresponsible business tax breaks that ultimately undermined state unemployment insurance finances,” said Owens. “These latest legislative measures were ushered through at the behest of corporate lobbyists, behind closed doors and with no public debate. Sadly, workers will not realize the consequences of these drastic measures until unemployment benefits are no longer there when they need them, by which time it will be too late.”

Federal intervention addressing the solvency and debt crisis will be required in order to avoid further damaging cuts to state unemployment insurance programs. Three federal options have been proposed as a means to stabilize states’ unemployment insurance programs, but only legislation introduced in February by Senator Richard Durbin of Illinois adopts a multifaceted approach that balances the immediate interests of employers, working families, and states with the long-term goal of putting state unemployment insurance programs on secure financial footing.

“This past legislative session underscores how important it is for the federal government to take action to stabilize state unemployment insurance programs,” said Owens. “Absent federal intervention, state legislatures are likely to continue futile and destructive attempts to balance trust fund finances on the backs of unemployed workers. We run the risk that state unemployment insurance programs will no longer be able to fulfill their primary purposes—helping unemployed workers subsist as they search for work, and injecting ballast into the economy to promote consumer spending and growth, at a time when it desperately needs it.”

NELP’s analysis of state legislation, entitled, “Unraveling the Unemployment Insurance Lifeline,” is available for download here.

The National Employment Law Project is a non-partisan, not-for-profit organization that conducts research and advocates on issues affecting low-wage and unemployed workers. For more about NELP, visit www.nelp.org.