Minnesota may tap out its jobless aid funds

With the nation's jobless rate scraping the rafters at 7.6 percent, Minnesota officials confirmed that the state's unemployment benefit trust fund is on course to run out around Christmas.

The scenario would send the state scurrying to the feds to borrow cash so that payments to laid-off Minnesotans can continue.

The state paid out $1 billion in unemployment insurance benefits in 2008 and had about $500 million left in the trust fund as of Jan. 1.

But thousands of more claims are on the way. Minnesota's unemployment rate hit a staggering 6.9 percent in December as more manufacturers, construction firms and retailers let workers go. Officials expect about $1.3 billion in unemployment claims this year, which would leave a $30 million deficit by year end, said Lee Nelson, the chief attorney for the Minnesota Department of Employment and Economic Development (DEED).

Nelson and other state officials downplayed the significance of having to tap federal funds. The state and federal unemployment insurance programs were designed to work in tandem and have been used together many times to see laid-off workers through lean times, they said.

In fact, the state's trust fund is expected to dip in and out of a deficit until 2013, Nelson said. "The fund has run dry before and the sky didn't fall. We just kept paying benefits," he said.

With headlines stating that New York, Michigan, Indiana and Wisconsin trust funds, have, or soon will, run dry, Americans are getting unnecessarily anxious, said DEED spokeswoman Kirsten Morell.

"We really want to assure people that all unemployment insurance benefits will be paid in Minnesota," Morell said. "There will be enough money to pay those benefits even if we have to borrow from the federal trust fund, which we will have to do and have done before in previous recessions," she said. "The whole program was set up to handle these slowdowns in the economy."

Minnesota tapped the federal unemployment benefit trust fund in 1975, 1984 through 1986, and from 2002 to 2005, Morell said. In 1984, the deficit was close to $1 billion based on today's dollar. "And as recently as March 2003, we were $443 million in debt," Nelson said.

The federal trust fund operates like a rolling credit line and is paid back over time from the unemployment insurance taxes that roll in quarterly from corporations. Should the pressures of this recession dry up state and federal trust funds, Nelson said, the state would borrow directly from the U.S. Treasury.

The large number of people filing for unemployment pay has recently overloaded computers and temporarily shut down application systems in New York, Ohio, North Carolina and Washington, D.C. "They can't handle the volume coming in the door," Nelson said, noting that Minnesota escaped such problems by updating its computers in 2007.

Still, the pressure is on. Last year, the average Minnesota job seeker collected unemployment payments for 18 weeks, up from 14 weeks in 2007. Come March, another 13 weeks of unemployment benefits will be added to the state's current limit of 26 weeks. State law mandates adding the 13 weeks of pay once the unemployment rate has exceeded 6.5 percent for three consecutive months.

Last week, Gov. Tim Pawlenty signed a law that will extend state benefits to 33 weeks for jobless Minnesotans who are ineligible for the federal extension.

The recession and the staggering number of layoffs at Target, 3M, Hutchinson Technology, Best Buy, Imation and elsewhere have pushed many Minnesotans to the brink. The number of job seekers reaching the state's 26-week maximum for unemployment benefits rose 50 percent from 2007 to 2008, said Steve Hine, director of the Minnesota Labor Market Information Office.

While benefits vary by wage, the average Minnesotan collected $340 a week from the state last year. Benefits are capped at $566 a week.