Will the safety net hold?

• Position: STATESTATS - State budgets for unemployment benefits

Claims for jobless benefits are rising at an alarming rate and unemployment trust funds in many states are facing a crisis. More than 2.5 million jobs disappeared in 2008, and more than 4 million unemployed workers currently receive unemployment benefits.

States pay for unemployment benefits through payroll taxes levied on employers. These taxes are deposited into the federal Unemployment Trust Fund, which maintains a separate account for each state, plus the District of Columbia, Puerto Rico and the U.S. Virgin Islands. Indiana's and Michigan's funds were so low recently they had to borrow from the Federal Unemployment Account.

Increased costs and decreased payroll tax revenue have overwhelmed some state accounts, but other factors may have contributed to deficiencies. As average wages increased in the last decade, some states increased benefits. Those higher costs now exacerbate shortfalls, as do the lower payroll tax rates adopted by some states when times were good. Finally, wage bases on which payroll taxes are calculated have not increased in recent years in some states to reflect higher average wages.

SOLUTIONS: TOUGH CHOICES FOR STATES

* Borrow short-term loans from the Federal Unemployment Account

* Transfer funds from other state accounts to cover benefits

* Increase payroll tax rates

* Increase the wage base on which payroll taxes are calculated

* Decrease benefits or restrict eligibility

CRITICAL RESERVE SHORTFALLS

Labor experts recommend that states maintain a balance sufficient to cover benefits for one year during a typical recession.

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CHECK OUT more information on unemployment insurance, visit www.ncsl/magazine.

STATE UNEMPLOYMENT TRUST FUNDS TRUST FUND BALANCE TRUST FUND BALANCE PERCENT 9/30/07 9/30/08 CHANGE Alabama $437,221,468 $395,510,909 -10% Alaska 314,895,264 346,883,460 10% Arizona 1,012,099,695 964,520,109 -5% Arkansas 187,894,501 151,276,263 -19% California 3,073,479,236 1,785,177,143 -42% Colorado 635,951,917 699,891,009 10% Connecticut 644,653,360 566,678,155 -12% Delaware 185,443,876 153,777,760 -17% D.C. 405,374,545 423,003,305 4% Florida 2,398,991,844 1,767,805,524 -26% Georgia...