State shutdown came with silver lining for unemployed

Attorney Lee Nelson is an expert on Minnesota and federal unemployment insurance laws. So, we turned to him to find out how the state shutdown and federal debt crisis could affect the unemployment programs that pay laid-off Minnesotans about $31 million a week in state and federal benefits. (That sum jumped to $38 million a week during the shutdown).

Q We just experienced a three-week shutdown of state government. How did that impact Minnesota unemployment?

A In the weeks leading up to it, we had been averaging 5,000 new unemployment insurance applications per week. And then we saw a sudden increase of 17,000... that is attributable to the state worker [layoffs] from the shutdown.

Q How does the state shutdown affect Minnesota's outlook for the rest of the year?

A There is one impact that this has and it is one of those great anomalies -- the shutdown actually has a positive impact.

The shutdown is very likely to mean that we will see an increase in the unemployment rate -- obviously. The law says that if the state has a three-month rolling unemployment average of less than 6.5 percent, then we stop [paying] the last 13 weeks of extended [unemployment] benefits [to laid-off workers]. That program would end.

But now it's very unlikely it will end this year because you are always taking the three-month average. So even if unemployment goes down to 6.3 or 6.4 percent in August or September, you will still have July creating a three-month average above 6.5 percent. Had the shutdown not occurred, we could have ended the program earlier.

A Yes. You get the initial 26 weeks of state unemployment benefits and then there are 47 weeks of federal unemployment extensions and then a final 13 weeks of this state/federal extended benefits.

Q Will the federal debt crisis affect unemployment payments to laid off workers? Would it force the government to stop paying federal unemployment benefits?

A I just checked on that. The government has a list of priorities to pay first [if the U.S. defaults]. Medicare, Social Security, Veterans Affairs and a few other things were on that list. Unemployment insurance is on the list of higher-priority items, but was kind of at the bottom. The problem always becomes how much exactly all these things draw. And how long they can be sustained? I don't know. I can't really predict that.

Q So it sounds like Social Security payments trump unemployment?

A Oh yes. And so do Veterans benefits ... Unemployment benefits were toward bottom of the list, but they were before any federal pay for federal workers. But they will pay Social Security first and then see what is left over and just keep going down the list.

A Remember that Minnesota is borrowing from the federal treasury. As of last week we were $480,354,851 in debt to the federal government for unemployment benefits. Well, if there is this debt crisis, it is unclear what that means as far as the states being able to continue to borrow from the federal treasury for unemployment.

Q So what is Minnesota doing?

A Minnesota employers have to pay their quarterly [unemployment insurance] taxes by July 31 ... and they will pay $275 million or more. Normally we would tell the Feds to apply that to our debt balance so that our interest rates would be a little lower.

With the concern over the debt crisis, we have told the Feds that we will not apply the taxes to our balance so we can continue paying unemployment. It's just a little bookkeeping maneuver to make sure that state benefits keep getting paid because we may not be able to borrow any more money.

Q Are there downsides to this approach?

So that means we will pay a little more in interest on our average daily balance. How much more depends on how long this [debt crisis] continues.