Mass. Unemployment Fund Running Out Of Money

By the end of this year, the state’s unemployment trust fund will hit zero. There’ll be no more money left for the more than 300,000 jobless residents. But that doesn’t mean they won’t be getting their weekly checks.    

“We will begin borrowing from the federal government in January,” said Secretary of Labor and Workforce Development Suzanne Bump. More than 20 states already borrow from a federal fund that employers pay into. But borrowing won’t be enough. Massachusetts will also increase the unemployment insurance tax rate that businesses pay.

“The average per-employee cost in 2009 has been $583 and it is scheduled to go up to $835 per employee,” Bump said. That’s an increase of more than 40 percent during one of the worst recessions.

“It’s a crummy time for that,” said Gov. Deval Patrick.

Patrick said his administration is working with businesses to soften the blow. “But they also understand that all of us collectively as a matter of values have a responsibility for people who are out of work right now,” he said. “We want to be as responsible and as humane as can be.”

But business leaders say increasing this tax will make Massachusetts unattractive for business at a time when the state needs jobs. “We are definitely uncompetitive on that front so a further increase would make us even less competitive,” said Jim Klocke with the Greater Boston Chamber of Commerce.

Massachusetts already has one of the highest unemployment insurance tax rates in the country. In addition, the Medical Security Trust Fund, which pays health insurance for laid-off workers, is also nearly out of money. Employers will have to pay more to make that fund solvent as well.

“An increase of this magnitude is pretty significant and I think even the most prudent employers may suffer from sticker shock when they get their bills,” said John Regan with the Associated Industries of Massachusetts.

There are a few ways the state could lessen the impact on employers. Secretary Bump said the state is considering borrowing more from the federal government and not raising the tax as much, but “it will mean that we will borrow more money and we will be paying higher interest costs.”

Even if the state increases the tax by 40 percent, it will still have to borrow about $1 billion next year. Bump said the state is not considering reducing jobless benefits. Massachusetts has the highest benefit in the country, with an average of $427 a week, compared to Mississippi, which pays $197. 

But the reason the trust fund is out of money, said Michael Widmer of the Massachusetts Taxpayers Association, is that the recession has overburdened it.

At a “7 to 8 percent unemployment rate, we are paying out more in benefits than we are taking in in taxes,” Widmer said. “The problem is getting worse, not better.”

The last time the unemployment insurance trust fund was depleted was during the last recession in 2004. The state briefly borrowed from the federal fund and fully repaid the loan by the next year. Since then, Massachusetts has maintained relatively low reserves and that’s contributed to the problem it’s facing now.

The state expects it will have to keep borrowing until 2013, putting the fund billions of dollars in debt.