Colorado unemployment fund out of money, but still paying
Colorado’s Unemployment Insurance Trust Fund has been broke for nearly two months, but those receiving unemployment checks need not worry their mailbox will be empty anytime soon.
The fund officially ran out of state money Jan. 20, but the state has borrowed $122 million from the federal government as of Wednesday to keep benefits flowing to unemployment insurance recipients, according to Wayne Peel, chief financial officer of the Colorado Department of Labor and Employment. The state borrows the money from the federal government on a daily basis and does not exceed what the state needs to pay unemployment benefits.
“The good news is this enables us to have no impact on people receiving unemployment benefits. They’ll continue to receive benefits without seeing any change,” Peel said.
Colorado is one of 30 states and U.S. territories receiving federal help to pay unemployment benefits. Peel said he expects three more states — Arizona, Delaware and New Hampshire — to join the list by the end of the month. The federal government expects to loan money to as many as 40 states by the end of the recession, Peel said.
The Colorado fund’s insolvency stemmed from high demand for benefits — the state processed 19,141 first-time, unemployment-insurance claims in June 2009, compared to 7,790 in June 2007 — and a system for filling the trust fund that hasn’t changed with inflation in more than 20 years. The fund’s balance shrank from $676.5 million in November 2008 to $161.7 million in November 2009, according to materials the Department of Labor and Employment presented to the Legislature’s Joint Budget Committee in December. The state paid an average of $88 million a month in the first 10 months of 2009.
On Feb. 18, the department returned to the JBC to discuss four options for helping the unemployment fund. Those suggestions included:
Allowing the fund that provides two-fifths of the Department of Labor and Employment’s funding to go insolvent, as it’s expected to do in 2012-13, and instead have the general fund pay for unemployment insurance benefits.
Increasing the unemployment surcharge charged to employers from 0.22 percent.
Increasing the unemployment-related surcharge and tax costs to employers by increasing the maximum for how much a person can make without taxes applying from $10,000 to $15,000 by 2016.
The department’s preferred option, as outlined in the materials, is the third option. Peel said the department has spoken with the business community about all these possibilities, but no solution has been set in stone.
The state will begin accruing interest on the money it is receiving from the federal government in January 2011. The interest rate is set annually by the federal government and currently is about 4.5 percent.