SOURCE:  OREGON PUBLIC BROADCASTING June 24, 2009

Oregon's Unemployment Insurance Trust Fund Still In Good Shape

BY KRISTIAN FODEN-VENCIL

There are almost a quarter of a million people in Oregon who are unemployed -- well over twice as many as there were at this time last year. And starting Monday, new claimants will get 2 percent bigger benefits.

All told, a massive $61 million is leaving state coffers every week to pay for unemployment benefits. But as Kristian Foden-Vencil reports, the state says its unemployment fund is well financed and healthy enough to keep paying out until at least 2012.

Oregon’s jobless rate is 12.4 percent. It’s the second worst in the nation -- just behind Michigan with all its car manufacturing woes.

Oregon Employment Department spokesman, Tom Fuller, says if all those Oregonians didn’t have unemployment benefits, the state would be going through an even tougher time.

Tom Fuller: “The real reason we have a trust fund like this is to keep a workforce available in the community when the economy picks back up. If there wasn’t any way for people to get by, get groceries, gas, etc. kind of a minimal living, they would move out of the area. And then when the economy picked back up, people wouldn’t be here to go back to work again. So that’s what unemployment insurance is for.”

He says the Unemployment Insurance Trust Fund is basically a financial bridge, which allows the economy to keep ticking between boom times.

Think of a big reservoir.

It fills up during the winter, when there’s lots of rain. And then when there’s a drought in the summer, it empties.

In this case, the rain is payroll taxes from Oregon employers.

The money goes to the federal treasury in Washington D.C., which pays an impressive 4.7 percent return.

Portland investment advisor, Bill Parish, says the feds are effectively subsidizing the states with that kind of interest.

Bill Parish: “For a 10-year treasury, you’ll get 3.6 percent. So the states, particularly Oregon with this unemployment fund, getting 4.7 percent is a real sweet return for the state.”

Since the unemployment fund is held in cash -- and not stocks or bonds -- it kept its value when the markets plummeted.

The fund may be safe from market swings, but it's vulnerable in other ways.

As with any large pot of money, it's subject to politics.

In fact, there are about a dozen states that tapped their unemployment funds for other purposes, and their funds are now in danger of running dry.

But not Oregon, says employment department spokesman, Tom Fuller.

He says Oregon has had various versions of the fund since the 1930’s, but that it now self-corrects by increasing payroll taxes when times are tough.

Tom Fuller: “So it’s not something that can be changed by political whim or department policy or anything else like that. It’s set in law that the fund is self-adjusting. The really good news about Oregon’s fund is that if the United States were a class, Oregon would get a solid A. We might have the second worst unemployment rate in the country, but we have the fourth best trust fund. And a lot of that is due to this law, passed in 1975, that self-corrects the fund. So that there’s always the amount of money that’s necessary to withstand that 18 months of a moderate, or even serious recession.”

While about $61 million a week is being paid out, payroll taxes have increased, so about $17 million a week is also being paid in.

But Fuller says the state is not concerned it’s going to run dry.

Tom Fuller: “Now the fund is going to get to a low point at some point. We think that is going to be somewhere in the next couple of years. Maybe around March 2012. But in the spring of 2011, we’ll actually be able to bring in more money than is going out. And so that’s when that tank starts to refill once again.”

Of course that depends on a turn-around in the financial climate. But some economists are predicting that things will pick up during the first quarter of 2010.

© 2009 OPB