Chattanooga: Jobless benefits grow; trust fund dwindles

Thousands of Tennesseans who have been unemployed for most of this year will get an extra three months of federally paid jobless benefits under an emergency measure signed into law Friday by President George Bush.

Despite the extra help from Uncle Sam to help cushion the economic downturn, the state’s unemployment trust fund still may be drained for the first time in 25 years if the recession continues to worsen, the state’s chief economist said Friday.

“Our assessment is that there is a very real chance that the trust fund will go negative somewhere over the course of the next 18 months,” said Dr. Bill Fox, director of the Center for Business and Economic Research at the University of Tennessee. “If this recession plays out as other significant downturns have done, we’re likely to see more people unemployed for longer periods and that could be enough to cause the fund to go negative by 2010 or 2011.”

Unemployed persons will continue to get jobless benefits, but Tennessee may be forced to raise employer fees, cut benefits or borrow from other state sources if its unemployment trust fund runs out of money, officials said.

With more jobless Tennesseans qualifying for unemployment insurance, the state’s unemployment trust fund has dropped by more than $53 million in the past year, state records show.

James Neeley, Tennessee’s commissioner of Labor and Workforce Development, said last month he will work with labor and business leaders to recommend changes in the plan for the Legislature to consider in January.

The state’s jobless trust fund collects fees from employers and pays monthly benefits of up to $275 to qualified workers who lose their jobs for up to six months. Because Tennessee’s 7 percent jobless rate exceeds the U.S. unemployment rate of 6.5 percent, the Volunteer State qualifies for extended unemployment benefits to be paid to those who exhausted previous benefits this year.

In July, Tennessee extended jobless benefits from 26 to 39 weeks for qualified persons. The measure approved this week by Congress and the president will extend those benefits by another 13 weeks.

Milissa Reierson, communications director for the Tennessee Department of Labor and Workforce Development, said about 55,000 persons qualified for extended benefits in July when the first 13-week extension was granted. Those who qualify for the newest extension will be notified by mail in the next few weeks, Ms. Reierson said.

Since 1983, when Tennessee’s unemployment insurance fund ran out of money, the state has adjusted its tax rates for employers twice a year to ensure the fund’s solvency. As reserves in the fund decline, taxes on employers are raised, based upon each business’s layoff experience.

The state could consider raising the $7,000 income cap on which the trust fund fee is paid or boosting the rates charged to employers, based upon their employment experience.

“It’s very difficult to forecast the degree of this downturn, but it looks like it could be the worst for unemployment since the 1982-83 recession,” Dr. Fox said.