State Unemployment Trust Funds in Trouble

May 8, 2014

States have unemployment insurance trust funds, intended to generate money to finance unemployment benefits for out-of-work Americans. But the funds took a hit during the recession, and many states are still facing large amounts of debt, reports Stateline.

  • In early 2011, when debt levels were at their worst, the states collectively owed $47 billion to the federal government.
  • During the Great Recession, 36 states asked the federal government for loans. Today, 16 states owe more than $21 billion to the federal government. This does not mean that the other states are not in debt -- many simply borrowed from the private bond market, making the debt difficult to track.
  • California held the highest amount of debt -- at more than $10 billion. As of March 31, its unemployment trust fund was $9.8 billion in debt.
  • Indiana, New York, North Carolina and Ohio each have more than $1 billion in debt.
  • Some states have been able to recover, however. Minnesota had a positive trust fund balance of $237.8 million, which dropped to more than $700 billion in debt in early 2011. As of March, the fund had a positive balance of more than $1 billion.

Some states raise taxes when their unemployment funds drop to low levels. Colorado, for example, taxed employers who laid off workers in 2010. But other states have reduced benefits instead.

  • North Carolina completely overhauled its unemployment system last year, becoming the first state to opt out of the federally funded long-term unemployment benefits system.
  • It also made the number of available weeks of unemployment benefits dependent upon the unemployment rate. When the unemployment rate is above 9 percent, 20 weeks of unemployment benefits are available. When the rate is at 5.5 percent, the state grants 12 weeks of benefits.
  • North Carolina's debt has fallen from $2.6 billion in early 2012 to $1.45 billion in March 2014.

These unemployment funds are not prepared for another round of widespread unemployment. Prior to the recession, the states together had less than $40 billion in their unemployment trust funds, the lowest level since World War II. In the early 2000s, the state funds had more than $50 billion.

Source: Jake Grovum, "Why State Unemployment Trust Fund Debt Matters," Stateline, April 29, 2014.

 

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