States running out of money in jobless funds

— -- The sharp rise in joblessness is draining unemployment insurance trust funds in many hard-hit states, setting the stage for a federal bailout to keep the funds solvent.

The unemployment rate reached a five-year high of 6.1% in August, putting the number of jobless people at 9.5 million, up 2.4 million from a year earlier. About one-third of the jobless collect unemployment insurance from state governments.

California, New York, Ohio and Michigan are among populous states projected to deplete their unemployment insurance funds this year or in 2009 to cover the cost of benefits.

The financial struggles should not jeopardize weekly jobless payments, which average $299 per week. "People will get their benefits. It's just a matter of where the money will come from," Loree Levy of the California Employment Development Department said.

The federal government is required to loan states money when their trust funds run short. In the short term, bailouts increase the federal deficit. In the long term, businesses pay higher unemployment insurance taxes to replenish the trust funds.

"Ohio hasn't faced anything like this for many years. I doubt other states have either," Ohio Chamber of Commerce President Andrew Doehrel said.

Thirty-two state trust funds are below the federally recommended level of having cash reserves equal to a year's worth of recession-level payments. A number of states will need federal assistance for jobless funds during this economic slowdown, said Andrew Stettner, deputy director of the National Employment Law Project.

"We're going to see many more states facing insolvency than in the past," he said.

State unemployment funds never fully recovered from the recession that started in 2001, Stettner said. Before the last downturn, trust funds had $54 billion in reserves. This time, reserves were $32 billion on March 30, the most recent figure available.

States with big problems:

• California doubled benefits in 2001 but did not raise its tax rate. The jobless fund went insolvent in 2004, then recovered. Now that unemployment is at 7.3%, it faces insolvency again in 2009.