States' Unemployment Trusts Going Downhill

East Orange, N.J. -- As a rising number of Americans sign up for unemployment benefits, many of the state-funded trusts that pay them are on the decline.

Job hunters line up to attend a job fair in Ontario, Calif., earlier this year. State-funded trusts that pay unemployment benefits are declining while the number of Americans signing up for those benefits is increasing.

(Chris Carlso/AP Photo)

At least 12 of them are on the brink of insolvency. In 20 other states, the funds have lost value, even before the big job losses of the past two months.

While unemployed workers will get their benefits -- federal law requires it -- the trust fund woes are putting states into a peculiar squeeze. They're loath to raise taxes or cut services in a recession, so many are racking up new loans. That debt burden will affect residents for years to come.

"No one wants to raise taxes in the middle of this kind of recession. And nobody wants to cut benefits," says Maurice Emsellem, an Oakland-based policy analyst who focuses on unemployment insurance issues for the National Employment Law Project. "So the states are going to have to borrow... and that's going to have a cost."

Related

10.7% Jobless in 'Recession Ground Zero'

WATCH: Florida Hit Hard by Recession

WATCH: Employment Outlook

The costs are already being rung up in some of America's biggest states. California's trust fell 42 percent in the year ended September, the latest period for which numbers are available, leaving it with enough to pay four months of estimated benefits. New York's trust had enough for two months of benefits; Indiana's, just one month. Michigan's is already bust. It has borrowed $550 million from the federal government to fill the hole.

The demand for benefits, meanwhile, is likely to soar.

Stamping his feet against the chill, Colin Hollinghead is waiting in line outside a New Jersey employment-assistance office in East Orange, one of the state's poorest towns. The 40-year-old father was laid off last month from a local auto-parts distributor. After a fruitless hour on hold this past Friday, he says he decided to come down to see if he could file for unemployment insurance in person.

"Money is real, real tight and it's the worst time of year,'' he says. "There's supposed to be an office to help you find a job in there, so I'll check with them... but I'm not expecting anything."