As South Carolina's unemployment rate is at a 15-year high, the trust fund from which the state pays unemployment benefits is running dry. It had contained nearly $800 million in 2000 but is now down to about $115 million. The state's unemployment rate in August was 7.6 percent, fifth-highest in the nation.
"Frankly, it is scary to me," says Allen Larson, who's in charge of the unemployment insurance program at the state Employment Security Commission. In his 32 years at the agency, he's never seen the situation this bad, he says.
Employers pay taxes into the trust fund for every employee. Therefore, when fewer people are working, employers are paying less into the fund. And because more people are unemployed, more money is going out of the fund than is coming in.
"It's going to be very, very close as to whether or not we go broke by the end of this year," Larson says. "We will definitely become insolvent in the first quarter. But depending on what happens over the next three months is going to tell us a lot about whether or not we're going to make it through the end of the year."
If and when the state does run out of money for the unemployment benefits, he says the short-term solution is to borrow from the federal government. But if the state isn't able to pay back that money within two years, taxes on employers will go up.
Larson says, "I'm not going to sit here and say, yes, it's absolutely going to cost them (employers) more. The likelihood right now, if the economy doesn't change or it gets worse, I would have to say yes."
He says about 35 other states are in similar situations. The state might also have to look at raising the taxable wage base, the amount on which employers pay taxes for each employee. South Carolina's employers pay unemployment insurance on the first $7,000 of an employee's wages, compared to $8,500 in Georgia and $18,600 in North Carolina.
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