Florida’s decision to expand the state’s unemployment insurance program in order to qualify for federal bailout money means the state will have higher expenses for the program in the future, even after the federal money runs out.
Using $418 million in federal stimulus money, the extension provides benefits for 250,000 unemployed Floridians who had exhausted their benefits.
The bailout came with a hefty price. To receive the additional funds, Florida lawmakers were required to increase the taxes paid by companies into the unemployment trust fund.
Approaching Insolvency
Florida’s unemployment fund continues to approach insolvency due to the growing number of unemployed citizens entering the system, a number likely to increase as a result of the 20-week extension of benefits.
The state’s unemployment rate currently stands at 10.2 percent, and its unemployment insurance trust fund has shrunk from $2 billion a year ago to around $750 million as of March 31, according to the St. Petersburg Times.
The state pays about $200 million per month in unemployment benefits, unsustainable without continued infusions of cash into the program.
But tax increases and federal bailouts do little to address the systemic deficiencies in the unemployment system, merely allowing the existing problems to survive and grow.
Extending Unemployment
Supporters of the benefits extension say it will provide an economic boost to the state. Research conducted by The Heritage Foundation disputes those claims, finding unemployment insurance (UI) extensions subsidize and extend unemployment.
“For each dollar spent extending UI benefits to 46 weeks, GDP expands in the first year by just $0.17,” writes James Sherk, Bradley Fellow in Labor Policy for Heritage’s Center for Data Analysis. “Almost any other use of resources would provide a greater short-term boost to the economy.”
An economic impact study by the Texas Public Policy Foundation on the effect of increasing unemployment insurance as part of the American Recovery and Reinvestment Act found similar results for Texas.
“The impact of accepting unemployment insurance funds from the American Recovery and Reinvestment Act of 2009 is particularly subject to discussion,” the study noted. “UI expenditures increase during a recession, which often drains state trust funds.
“Historically, the federal government steps in to cover the increased costs, but with strings that require expanded UI benefits,” the report noted. “Once the temporary federal money has run dry, states have historically been forced to ramp up their collections in order to maintain the additional support previously provided by the federal government.”
Matthew Glans ([email protected]) is legislative specialist in insurance and finance at The Heartland Institute.
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.
