The latest projections for the fund show it running out of cash sometime in the first three months of next year, leaving a shortfall that would not be covered until April, despite a tax increase passed last spring.
That means the state probably will need to take out a short-term, tax-free loan from the federal government to maintain benefit payments, Labor and Workforce Development Commissioner James Neeley told the state legislature's Joint Business Tax Committee.
The unemployment trust fund has a balance of $183 million, as 10,530 people filed initial claims for benefits. Last spring, the state legislature passed an increase in annual unemployment taxes of about $110 per worker to keep the fund solvent.
Related5/20/09: Jobless aid set to grow in TennesseeGov. Phil Bredesen said in November that high demand for unemployment benefits would require passing another tax increase.
But Bill Fox, an economist from the University of Tennessee who advises the state, said the gap should be closed in April, when the fund's balance typically surges as taxes come due for the first time in a year on many Tennessee workers. This year, the surge is expected to bring about $428 million into the fund.
The state Constitution prohibits borrowing to pay for ongoing government operations. But Fox said that restriction applies only if the government runs a deficit when a fiscal year ends June 30.
"You can't have a negative number across fiscal years," he said. "I don't think that's likely."
Chas Sisk can be reached at 615-259-8283 or csisk@tennessean.com.
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