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At Issue: A lifeline for the jobless

Published (1/30/2009)
By Nick Busse
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A workforce employee assists a client with filling out a claim, while other clients search job postings on computers at a Workforce Center in St. Paul.For Minnesotans who’ve recently been laid off from their jobs, the state’s unemployment insurance program can be a lifeline. It helps them pay their bills, put food on the table and keep a roof over their head until they can find new work.

“It’s the social safety net that keeps people from real devastation,” said Rep. Tim Mahoney (DFL-St. Paul).

Unemployment benefits don’t last forever, though — and as Minnesota plunges with the rest of the country into potentially the worst economic crisis since World War II, many will be unable to find new jobs before their benefits run out. The federal government recently extended those benefits, but many Minnesotans won’t be eligible for the extension right away.

Mahoney didn’t think they could afford to wait. Along with Senate President James Metzen (DFL-South St. Paul), he sponsored HF4/SF4*/CH1, which will plug the gap between the state’s regular unemployment benefits and the federal extension. Passed by the House 117-11 on Jan. 29 and 65-0 by the Senate two weeks earlier, it was signed into law Jan. 29 by Gov. Tim Pawlenty.

The law will create a state-funded extension to supplement the federal one, and also make a larger number of Minnesotans eligible for the federal money.

“By and large, this (law) is really designed to get Minnesota’s system ready to allow people to get on to the federal extension,” Mahoney explained.

Minnesota’s unemployment insurance program was founded in 1936 at the direction of the federal government. To be eligible to receive benefits, a person must be physically and mentally able to work, ready and willing to accept a job in their industry, and actively seeking employment. Minnesotans who meet those criteria are entitled to unemployment benefits equal to half of their average weekly wage, up to a maximum of $566. Typically, unemployment benefits run out after 26 weeks.

According to the Department of Employment and Economic Development, approximately 214,000 Minnesotans received about $1 billion in unemployment benefits in 2008. Department officials estimate that the state extension in the law will apply to approximately 3,000 people. In addition, the law will allow roughly half of Minnesotans who exhaust their regular benefits to qualify for the federal extension.

With as many as 260,000 Minnesotans expected to be out of work by Christmas, the state’s unemployment insurance system is under heavy strain. Monthly unemployment claims in Minnesota are at their highest seasonally-adjusted levels in almost 27 years.

The state’s unemployment insurance trust fund, which currently holds some $500 million, is expected to go into deficit by the last week in December. It wouldn’t be the first time it happened, but it would mean that the state would need to borrow money from the federal government to pay unemployment benefits. Department officials estimate that the law will cause the fund to go into deficit approximately three days earlier.

That idea has some Republican members concerned. Noting that the unemployment insurance program is funded by a payroll tax on employers, they point out that any interest owed to the federal treasury will ultimately be paid by Minnesota’s business community.

“This will be $16 million of additional expense that will be borne by the Minnesota businesses at some point in time,” said Rep. Denny McNamara (R-Hastings), speaking at a Jan. 22 meeting of the House Ways and Means Committee. He added, “There is no free lunch.”

Mahoney and DEED officials point out that while this is true, the situation will not cause an increase in the payroll tax. Moreover, Mahoney said that the expected federal stimulus package may include a provision that allows states to borrow unemployment funds interest-free.

Whatever the case may be, Mahoney said that workers who lose their jobs aren’t interested in the complexities of unemployment funding; they just need the help.

“The guy walking down the street who just got unemployed, he doesn’t understand the extensions and, you know, Minnesota’s trust fund vs. the federal trust fund. … He understands that he’s unemployed and he needs to pay the bills,” Mahoney said.

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