December 15, 2008 6:00PM

Many States Need Bailouts (or, Where Did the Money Go?)

By Brian Sullivan

Interesting story in today’s New York Times about how many states’ unemployment benefit funds are drying up and how the states may need - or have already asked for - help from the Federal government.

One of the key passages from the article:

Unemployment taxes are collected by states from employers, but the rate varies from state to state per employee. In good times states build up trust funds so that when unemployment is high there is enough money to cover the requests for benefits, which are guaranteed by the federal government.

Key on that line: “in good times states build up trust funds…”

The question becomes: where exactly has all the money gone during the previous years’ boom times?

It’s not shocking or surprising that Michigan is on the list as needing government help.    That state has been in the middle of a slow-motion downturn for a decade and had more than it’s share of job losses given  dramatic weakening of manufacturing and the auto sector.  It’s the reality of the auto “bailout” we continue to discuss.  No matter what happens, the Federal government and you, the taxpayer, are going to end up paying for this somehow whether it’s in the use of TARP money for a loan or to supplement the dried up jobless benefits.

More surprising and sad are the other states appearing on the list.   States such as New York and Indiana.

Yes, manufacturing weakness has hit Indiana.   But one would think with the recent multi-year boom in corn prices and the added money after the state sold the rights to its main highway - where it received $3.8 billion bucks up front -  that there may have been some “rainy day” fund built up.   It looks like that wasn’t the case.    Where did the money go?

New York is being hit hard by the downturn in Wall Street.   Whatever people think of the world of finance and the high salaries, there is no denying it paid its fair share in taxes.   Tax revenues in the Empire State rose to a record the past few years.   Where did the money go?

The defense will say that no one could’ve foreseen the rapid and steep drop in business and housing and the associated tax revenues, or the quick jump in joblessness.   That doesn’t hold up.   There was simply too much money being brought in in taxes over the past five years across America to need this kind of money this soon.   The money simply vanished in too many programs and too many promises.   The scary thing is that most expect we are at the beginning of the downturn, not the end.   Where did the money go, and where will this new needed money come from?

And when will Congress start hauling other lawmakers - its own kind - into hearings about where the money went?   They seem to have no problem doing it to private industries.