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Tennessee May Reject Stimulus Aid for Jobless

February 25, 2009

By Chas Sisk

Tennessee could reject a portion of the $787 billion economic stimulus package out of concerns that it would force the state to raise taxes on businesses in the future.

At the National Governors Association meetings in Washington, D.C., Gov. Phil Bredesen said this week that he might turn down relief for unemployed workers worth an estimated $143 million because of conditions placed on the money by Congress.

The stimulus package would also raise unemployment benefits by $25 a week for all workers, but in addition, lawmakers want states to expand the pool of people who can apply for benefits. That would put more pressure on an unemployment trust fund that is already trying to stave off insolvency.

“We are evaluating this piece of money, whether it makes sense for us to take it,” Bredesen said in an interview Monday with the Chattanooga Times Free Press. “We’re in the position of going back to our legislature this year for changes in our tax structure just to keep our fund whole, and taking it to a new level may be too much of a lift for the legislature this spring.”

Balanced against that is the boost the state’s unemployment fund could get from the stimulus package.

The plan would give every person claiming unemployment an extra $25 a week through 2009, starting next month. That part of the stimulus is funded separately and has already been approved by the governor.

Benefits in Tennessee are currently capped at $275 a week, and many people receive less.

“I think it would be good, very helpful,” Danny Heyward, 50, an unemployed construction worker, said Tuesday. “Of course we would like more, but we have to take what we can get.”

The stimulus package would also give money to the states to shore up their unemployment funds. The Republican governors of Louisiana, Mississippi and South Carolina have already committed to turning down unemployment assistance because of strings attached to the money.

Critics say the conditions will saddle states with a host of people who are newly eligible for unemployment benefits, an obligation legislatures will have to fund long after money from the stimulus package has been doled out.

“We’re looking at adding new benefits that don’t fall under the scope of unemployment,” said Jim Brown, state director for the National Federation of Independent Business. “There’s real mission drift.”

The stimulus package allocates $7 billion to states for unemployment trust funds, but to get the money, they must meet two sets of requirements:

One-third of the payout is contingent on states’ changing the formulas used to calculate whether people qualify for unemployment payments. The change is meant to make more people eligible for benefits.

Two-thirds of the payout is contingent on states’ taking two actions on a menu of four options. These options are: adding a $15 allowance for dependents, lengthening benefits for people who are training for a new job, extending benefits to people looking for part-time work or letting people claim unemployment if they leave work for some family reasons, such as a sick relative or domestic violence.

“It’s getting away from what unemployment benefits are intended for,” Brown said.

Fund loses money

The changes would come as Tennessee’s unemployment system is already dealing with record claims from a recession that is putting large numbers of people out of work and keeping them unemployed longer.

In the second week of February alone, more than 12,000 people filed claims for unemployment benefits, more than double the number from a year ago.

The rising number of claimants has drained the unemployment trust fund.

The fund’s balance stood at $315.7 million last week, down from $526.1 million a year ago.
The state Department of Labor and Workforce Development is preparing to raise unemployment insurance premiums paid by employers to bring more money into the fund. But even with that extra revenue factored in, the fund is expected to become insolvent sometime next year.

Adding more obligations to the unemployment system could make it even harder to cover the shortfall, said Bill Fox, an economist at the University of Tennessee and an adviser to the fund. It might require even higher payments by businesses after the recession is over.

“We have a stimulus package that is intended to be short-term, and this would have a long-term effect on the structure of the system,” Fox said. “To use the leverage of the stimulus in that way is not right.”