South By North Strategies, Ltd.

A recent report from the National Employment and Law Project details the extent to which policymakers refuse to learn from the mistakes that left so many state unemployment insurance systems underfunded going into the “Great Recession.”

States were about $38 billion short of meeting recommended pre‐recession trust fund reserve levels and will need to accumulate approximately $86 billion of trust fund reserves to be adequately financed by the end of 2016. At the end of 2010, the nation’s collective trust fund balance stood at a negative $30 billion. Nationwide, employer contribution rates would have to increase by over 50 percent from 2010 levels for states to accumulate adequate reserves within the next five years. The necessary increase is even more extreme for the most highly indebted states. Realistically, it is unreasonable to believe that states will close this gap without doing further harm to the UI program’s ability to sustain unemployed workers and their families through periods of temporary job loss.
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Accumulating adequate pre‐recession reserves requires a long‐term commitment and foresight on the part of state lawmakers and employers to raise or maintain employer contributions when there is no existing crisis. Recent observers have pointed out that there is little incentive for myopic state lawmakers to accumulate adequate trust fund reserves (Galle 2012, 2–5). Those predominately large states that were not prepared for the recent recession needed to collect substantially more tax revenue from employers following the 2001 recession to have met the recommended solvency measure. Going forward, an even greater commitment will be necessary from insolvent states for the entire trust fund system to return to solvency over the next five years.