Connecticut Saves Money on Issuing Unemployment Benefits

by Mercator Advisory Group 0

Following the trend of the federal government and other states, Connecticut has moved to eliminate paper checks from its benefits programs by a JPMorgan Chase-issued card to distribute unemployment benefits. The amount of funds loaded onto prepaid cards for unemployment benefits grew by 293%, to 23.2 billion from 2008 to 2009, according to Mercator research. We estimate the numbers grew another 20% from 2009 to 2010, to $27.8 million. We will continue to update these numbers in our upcoming benchmark reports.

Connecticut has made the move to save money for both the state and for unemployment recipients without a bank account.

Carl Guzzardi, unemployment insurance tax director for the state, says the switch from paper checks to electronic deposits and debit cards will save hundreds of thousands of dollars in state expenses every week by cutting costs by 80 percent. At a time when Connecticut is looking at a budget deficit of more than $3.5 billion, cutting costs has become the holy grail of state government.

Under the state’s old contract for processing paper unemployment checks, Guzzardi says, Bank of America was getting between $720,000 and $840,000 a year depending on the number of checks being sent out. Under the new electronic system, the state expects to pay Chase about $180,000 annually for processing.

However the article points out that this could have adverse effects on Connecticut’s check cashing stores and lead to increased unemployment.

Don Schwab, owner of a chain of shops in the Hartford region called City Check Cashing Inc., estimates that unemployment checks represent about one-fifth of all the business handled by Connecticut check cashers. He says the industry in this state handles $600 million to $800 million a year in checks of all types.

“We’re cut off by the balls — they’re taking away 20 percent of our overall business!” Schwab says of the state’s move away from paper unemployment checks. “We’re trying desperately to stay alive in our industry. If we take a 20 percent cut … I won’t need as many employees.”

According to the article, about 70% of unemployment recipients receive their benefits via direct deposit to bank accounts.