A shrinking unemployment insurance fund could pose a growing problem for unemployed workers in South Dakota, a top labor official said. And if the state's unemployment eligibility requirements remain strict, South Dakota stands to lose millions in potential federal funding as part of the proposed economic stimulus recovery package now in Congress.

The state's unemployment insurance trust fund held $25.5 million as of Dec. 31, down from a high of $51.2 million in 2002.

"It's low, and it could get lower," said Mark Anderson, president of the South Dakota State Federation of Labor. "I think it's a problem."

Rep. Mark Kirkeby, R-Rapid City, who serves on the House Taxation Committee, said he has "some concern" about the unemployment insurance fund balance because "you never know what tomorrow will bring."

But the director of the state's unemployment insurance division is not worried about the fund's size or its solvency, and jobless people shouldn't be, either, he said.

"We continue to monitor that fund all the time," said Don Kattke. "We look at it on a monthly basis and keep a good solid eye on its inflows and outflows."

Kattke said no one knows what will happen to the state's economy in 2009, but he is confident that the quarterly infusion of unemployment insurance payroll taxes from employers will replenish the trust fund as needed.

For the past three years, the state has paid about $20 million in unemployment benefits on about 16,000 claims annually. But South Dakota's current jobless rate of 3.9 percent, coupled with big increases in the numbers of people filing unemployment claims in recent months, promises to push those yearly totals higher in 2009.

In December 2008, South Dakota paid out $3.7 million in unemployment benefits, as initial unemployment claims jumped by more than 2,000 in one month to 4,879. In January, that number rose to $5.3 million in unemployment benefits. If those numbers continue through the year, the state would need more than $60 million in the fund by year's end.

Surrounding states keep a much bigger cushion in their unemployment trust funds, mostly because they pay out higher weekly unemployment benefits and have less restrictive eligibility criteria. In mid-January, North Dakota had nearly $134 million in its unemployment trust fund. Wyoming and Nebraska had recent fund balances of approximately $254 million and $287 million, respectively.

Businesses contribute more to the unemployment funds in those states. For example, in South Dakota in 2009, the taxable wage base is $9,500. In North Dakota, the state taxes businesses on the first $23,000 in wages.

With the smaller fund and its tighter criteria, South Dakota pays its unemployed less than surrounding states. Weekly unemployment insurance benefits top out at $298 in South Dakota. North Dakota has a maximum weekly benefit of $406, and Wyoming's is $415.

"That comes down to the legislatures. We pay significantly more in benefits," said Darren Brostrom, director of North Dakota's unemployment insurance division.

And North Dakota pays them to more people, too.

Eligibility rules to qualify for unemployment insurance benefits are less restrictive in North Dakota, where 9,027 people filed initial claims in December, about twice as many as do in a typical December, Brostrom said. Last year, North Dakota spent about $41 million in benefits on more than 30,000 claims.

By comparison, South Dakota has the lowest rate of jobless people receiving unemployment insurance benefits in the nation (18 percent). But South Dakota's more restrictive criteria for qualifying for unemployment could cost the state millions in potential federal dollars.

As part of the pending Unemployment Insurance Modernization Act now before the U.S. Senate, South Dakota automatically qualifies for $1.2 million as its share of a $500 million allocation to help states with the increased administrative costs of processing more unemployment claims. The legislation is part of President Obama's proposed economic stimulus package.

But South Dakota would not be eligible for another $17 million in incentive payments unless it agrees to reform some "antiquated" unemployment laws, according to Maurice Emsellem of the National Employment Law Project.

To qualify for one-third of the UIMA funding, states must adopt an "alternative" base period for wages, which would increase the number of low-wage workers in South Dakota who are eligible for benefits by about 900.

Currently, South Dakota looks at the first four of the past five calendar quarters, ignoring a worker's most recent wages. To qualify for benefits, you must have been paid wages for insured work, for civilian employment with the federal government or for active duty in the military service in two or more quarters of your base period.

That "wage delay" was built into the system years ago when traditional mail and hand collection of data made gathering wage information a slower process. But it is outdated in today's electronic age, Emsellem said.

"I don't know why we wouldn't," labor leader Anderson said of adopting the alternative base period for wages. The extra $17 million from the federal government would fund the increases in worker eligibility for more than 12 years, Emsellem said.

To qualify for the other two-thirds, it must adopt one reform of its choosing from among a list of several the federal government suggests.

Kattke won't comment on South Dakota's compliance with UIMA until the proposed legislation is actually law. State Labor Secretary Pam Roberts didn't respond to the question.

But Anderson said state labor officials indicated to him that they don't plan to address unemployment insurance eligibility criteria in the 2009 Legislature. Given that the national recession is arriving in South Dakota, that's a mistake, Anderson said.

"They don't want to loosen up the criteria so more people can qualify," Anderson said. "That seems to be the way this state operates. We're more concerned about employers than employees, and at some point, we've got to change our mind on that."

Ritchie Nordstrom, the chief steward of the Rapid City chapter of American Federation of State, County and Municipal Employees, said he wants to see South Dakota increase unemployment benefits and reduce obstacles to qualifying for them.

"Locally, we've had lots of layoffs already, and nobody gets rich on unemployment," Nordstrom said. "Employees have got to go through big hurdles to get to the point where they are eligible."

Contact Mary Garrigan at 394-8424 or mary.garrigan@rapidcityjournal.com