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“Forward Funding” for Unemployment Insurance? Hardly

May 10, 2011 at 1:49 PM

House Ways and Means Committee Chairman Dave Camp and Senate Finance Committee Ranking Republican Orrin Hatch have introduced a bill that, they say, would improve the unemployment insurance (UI) system by “forward funding” federal UI payments to states.  That sounds good and, in fact, “forward funding” is a worthy goal, as explained below.  But, their bill actually would let states take federal funds that are supposed to help the long-term unemployed and use them for other purposes.  That not only would hurt some of the most vulnerable Americans but also would slow the economic recovery.

“Forward funding” refers to the practice of putting aside enough money in state UI trust funds in good times to pay for the benefits needed in hard times. The families that receive UI benefits then boost the economy by spending the money when consumer demand is weak.  As we explained in a recent report, Congress needs to enact legislation to give states a framework to restore forward-funding before the next recession. Without such legislation, most states likely will enter the next recession without the money needed to pay benefits. Senate Bill 386, introduced earlier this year, provides the sort of framework that states need.

The Camp-Hatch proposal would do something very different, and damaging.  It would break a deal the President and Congressional leaders negotiated late last year in which lawmakers extended jobless benefits for one year for the long-term unemployed—those out of work for more than 26 weeks.  That assistance is especially important for the long-term unemployed because states’ unemployment benefits typically end after 26 weeks, but — with the job market still very weak — more than 4 in 10 unemployed workers are not able to find jobs within that time.

Under their bill, Camp and Hatch would let states use this money, which was supposed to pay benefits to the long-term unemployed, in various other ways, including to pay down loans they took from the federal government or to pay benefits to those unemployed for fewer than 26 weeks.  Most of the Camp-Hatch options for state spending would weaken the recovery by taking money out of the pockets of people who would spend it quickly to meet their basic needs.

Because their bill would give money to states immediately instead of over the rest of the year, the two lawmakers say they are “forward funding” the money.  Actually, they’re just raiding benefits for the long-term unemployed.


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