Without action by Congress, extended unemployment benefits could disappear

The new year may ring in especially cold for about 75,000 unemployed North Carolinians, and more than 1 million others nationwide, unless Congress agrees to another extension of unemployment benefits.

If Congress fails to act, the extra unemployment aid provided through the federal stimulus act will expire Dec. 31.

However, if Congress does act, some recipients would well exceed 100 weeks of unemployment benefits -- about four times the normal maximum amount of benefits.

The N.C. Employment Security Commission is preparing to send out 75,000 letters this week to those unemployment beneficiaries who may be affected by the cutoff.

"We're really dealing with unprecedented times," said David Clegg, an official with the commission. "I don't think anyone ever envisioned someone receiving unemployment benefits for two consecutive years."

The jobless rate, at 11 percent in October, has been above 10 percent for nine consecutive months. Since the recession began in December 2007, North Carolina has shed 240,100 jobs.

Economists are projecting that the job market may grow worse in 2010.

According to the Economic Policy Institute, a research group based in Washington, one out of every three unemployed Americans, or about 5.4 million, has been without a job for at least six months.

"Altogether, 17.5 percent of the labor force is under­employed -- more than 27 million Americans, including one in four minority workers," the institute said. "We can expect a third of the work force to be unemployed or underemployed at some point over the next year."

People who qualify for state unemployment benefits are eligible for up to 26 weeks, which is paid through taxes collected from employers. The federal Trade Adjustment Assistance Act provides extra unemployment benefits and a health-insurance subsidy to those workers who lost their jobs because of issues related to foreign trade.

As part of this year's stimulus act, federal unemployment benefits were extended by 34 to 53 weeks depending on a state's jobless rate. North Carolinians were among those who benefited.

In November, Congress extended the benefits by another 14 to 20 weeks, which added up to a combined 99 weeks for those getting the maximum amount in each extension.

About 4.6 million Americans received extended benefits in the week that ended Nov. 21 -- the latest data available.

"I never thought unemployment compensation would be extended for this length of time," said Michael Walden, an economics professor at N.C. State University. "This is another rude surprise from the Great Recession."

For many unemployed people, federal health-insurance subsidies -- consisting of 65 percent of insurance costs under COBRA being paid for up to nine months -- have expired.

Economists estimate that extending unemployment and health-insurance benefits through 2010 could cost about $100 billion. One consideration is using some of the $200 billion remaining in the Troubled Asset Relief Program for unemployment benefits rather than ending the relief program aimed at financial institutions.

Most economists expect that Congress will approve some kind of extension.

But if it doesn't, those who lost their jobs after July 1 would receive no federally paid extension beyond the state-paid benefits. Some may qualify for additional state benefits.

"If the program is not extended, many people receiving insurance payments will be frozen at their current benefit tier," said John Quinterno, a principal at South by North Strategies Ltd., a research company focused on economic and social policy.

"If full federal financing of the extended benefits program ends, it means that the state will be liable for half the costs."

The rising local jobless rates come at a time when North Carolina owes more than $1.5 billion to the federal government for loans necessary to pay unemployment claims. The state has borrowed money since February. Clegg said that the borrowing could exceed $2 billion by the end of the year.

During the last recession, the state borrowed just $270 million for its unemployment-insurance trust fund.

The debt is interest-free through the end of next year because of the federal stimulus package.

Some economists expect that Congress will forgive some of the borrowing amounts so as to not require states to raise their unemployment tax to employers, many of which already are hesitant to add jobs.

Tony Plath, a finance professor at UNC Charlotte, said that extended unemployment benefits "is a ticking time bomb for state government."

"Of course, none of us ever thought we'd see triple-digit unemployment benefit weeks," Plath said. "The most important element in the crisis here is the slow rate at which this economy is putting unemployed workers back to work."

He said that because half of the burden of providing unemployment insurance benefits falls on state government, "we're headed for yet another crisis in the state budget in 2010 and 2011."

"We just can't wait two or three years for the unemployment rate to get back down to 4 or 5 percent," Plath said. "The cost of prolonged unemployment-insurance benefits will bankrupt the state by then."

rcraver@wsjournal.com


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