Delay in Implementing Sequester Forces Deeper Unemployment Cuts

A crowd of job seekers attends a health care job fair in New York in March. Despite a recovering economy, thousands of Americans have been out of work for longer than six months. Many of them are facing cuts to their unemployment benefits because of sequestration. (AP)

Thousands of jobless Americans could see their unemployment checks shrink by as much as one-fourth because their states have been slow to implement across-the-board federal spending cuts.

States that implemented the cuts earlier have been able to spread out the impact over time, softening the blow. By contrast, as many as 32 states have delayed the reductions and are now being forced to make them in a shorter time frame, meaning deeper cuts to weekly benefit checks.

The people who will feel the pinch have been out of work for six months or longer. That's because the budget sequester which took effect March 1 applies only to the emergency aid the federal government is providing to the long-term unemployed, not to the regular unemployment benefits paid jointly by the federal government and the states.

Regular unemployment benefits last about 26 weeks. The emergency federal aid extends benefits for an additional 14-47 weeks, depending on a state's unemployment rate.  About 1.8 million people, more than 15 percent of the unemployed, are receiving these emergency benefits, which average about $300 per week.

“It's very hard to understand why some states can get it done and some states can't get it done,” said Maurice Emsellem of the National Employment Law Project, an advocacy organization. “You can't make excuses for that.”

“The people who are already the hardest hit are having to suffer the consequences,” Emsellem said. “We're cutting their unemployment benefits. That's really devastating. That's a bag of groceries, or more, for a lot of people.”

States that haven't made the cuts yet blame bureaucratic hurdles, decades-old technology and shrunken state workforces for the delay. These challenges have grown so formidable that some states may discontinue providing the federally-funded emergency benefits, according to Richard Hobbie of the National Association of State Workforce Agencies. It's up to states whether to offer the emergency benefits, since they administer the program.

In the 14 states that made the required cuts by the initial March 31 deadline, jobless benefits shrunk by 11 percent. Five states have made the cuts since then, and as many as 10 more could do so this week, according to the Department of Labor.

The Sequester's Impact on Unemployment Insurance Programs in the States

  • Alaska 3.10%
  • Connecticut 2.70%
  • New Jersey 2.70%
  • District of Columbia* 2.30%
  • California 2.10%
  • Michigan 2.00%
  • North Carolina 1.80%
  • Pennsylvania 1.80%
  • Georgia 1.70%
  • Nevada 1.70%

Individuals receiving federally-funded unemployment insurance benefits as a percentage of the state labor force (January 2013).

Pew analysis of U.S. Department of Labor, Employment and Training Administration and Federal Funds Information for States data. *Data is from December 2012.

States that don't enact the cuts until the end of May will have to slash benefits by nearly 17 percent. At the end of June, the percentage will jump to nearly 23 percent.

Arkansas, the District of Columbia, Georgia, Iowa, Idaho, Indiana, Kansas, Kentucky, Michigan, Minnesota, New York, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Vermont, Wisconsin and West Virginia have enacted the cuts already, according to the Department of Labor.

From the beginning, state officials warned that they would be hard-pressed to incorporate the cuts quickly. The National Association of State Workforce Agencies alerted congressional leaders to the issue the day the budget cuts took effect.

“The very short lead time will make this reduction very difficult for most states to implement,” Laurie Warner, the association's president and director of the Oregon Employment Department, wrote in a March 1 letter to top congressional budget leaders. “System changes of this nature can take weeks if not months to bring on line in many states.”

Complicating matters – and roiling activists who've been sounding alarms for years – is the decrepit condition of many states' unemployment administration systems. Advocates for the unemployed have long complained about out-of-date technology and poor management, problems that are only making the automatic budget cuts harder to implement.

Even the state workforce association admitted that disrepair and dated technology is contributing to the problem.

“Most state workforce agencies, which administer [the emergency] benefits, are operating antiquated computer systems, averaging 25 years of age or more,” Warner wrote in her letter.

States also blame earlier cuts in federal aid for contributing to the problem. The federal government pays states to administer unemployment insurance programs, but it has reduced that support, prompting states to lay off some employees. A recent survey found nearly half the states forecast additional agency layoffs this year as a result of federal cuts.

Congress has offered a $40,000 grant to each state to help implement the sequestration reductions, but few believe that is sufficient. A survey by the workforce agencies group estimated that a state would have to spend about $135,000 to implement the cuts.

Others have suggested that states are delaying the cuts in the hopes that a deal will be reached in Washington to reduce the cuts or make them unnecessary. Last week, after the furlough of air traffic controllers caused widespread flight delays, Congress quickly approved legislation allowing the FAA to find alternative ways to implement its sequester cuts. No state has admitted to pursuing this strategy, however.

The Congressional Budget Office has estimated the overall sequestration reduction will cut economic growth by 0.6 percent and cost as many as 750,000 jobs. The nature of unemployment benefits – the dollars generally go to struggling Americans with little choice but to spend the money and contribute to economic activity – means any reductions will be particularly painful.

“It's cuts to incomes of people who are struggling, and therefore who are people that would have to cut back on their spending,” said Chad Stone, chief economist at the Center on Budget and Policy Priorities, a liberal-leaning Washington think tank. “Unemployment compensation is one of the more high-bang-for-the-buck programs in a weak economy.”