Mounting U.S. jobless claims force states to borrow

By Tom Ryan and Andrew Stern

NEW YORK/CHICAGO (Reuters) - The government unemployment checks keeping Candy Czernicki afloat are fast running out and her prospects of getting a new job appear remote.

The lengthy recession has proved discouraging for the swelling ranks of unemployed Americans, and forced U.S. states obligated to pay them jobless benefits to pile debt on their already strained budgets.

Fifteen states have depleted their unemployment insurance funds so far, forcing them to borrow from the U.S. Treasury. A record 30 of the country's 50 states are expected to have to borrow up to $17 billion by next year, said Rick McHugh of the National Employment Law Project, a nonpartisan advocacy group.

"We are setting the stage for big pressures for states to restrict eligibility and benefit levels," McHugh said. "Those type of restrictive actions undercut the (Depression-era program's) economic and social stability purposes."

The state-run unemployment insurance programs are normally financed with payroll taxes paid by employers on each worker. But the funds' tax revenues are falling at the same time as benefit demands are rising.

Nine million Americans are receiving jobless benefits, triple the number who got checks at the beginning of the year.

Experts predict the number of recipients will peak sometime this summer as long-term unemployed run out of benefits, which were recently extended and last for 59 weeks in most cases.

"I believe I have two months of benefits left," said Czernicki, 44, who was laid off from her Eau Claire, Wisconsin, newspaper editing job last year.

UNFORESEEN IMPACT

"I am living with my sister because, after eight months of unemployment, I couldn't be living on my own any more," she said. "I don't think my sister will throw me out. I know at least that I am not going to be homeless."

Jonathan Cohen was laid off by a New Jersey nonprofit a few months ago and is growing discouraged. Competition for available jobs is fierce and he fears his monthly unemployment insurance checks will stop before he lands a new position.

"Once unemployment runs out then I'm 100 percent drawing down on my savings," Cohen said. "I'm hoping that as the (federal) stimulus money gets through the pipelines you'll start to see more openings."

The majority of states that did not foresee the recession's devastating impact and failed to create an adequate cushion in their unemployment insurance funds may seek to raise payroll taxes, meeting resistance from employers, experts predicted.

"State unemployment taxes will have to go up, but unemployment will have to come down," said Andrew Stettner of the National Employment Law Project.

The financial stress on states is only part of a larger budget debacle most face.