State unemployment compensation trust funds continue to struggle, report finds

By Bethany Blankley | The Center Square

State unemployment compensation trust funds continue to struggle, a new report published by the Tax Foundation reveals.

As of Dec. 17, 20 states and the U.S. Virgin Islands have taken out loans from the federal government – totaling roughly $44.3 billion in Title XII Advances – which are required to be paid back with interest.

States entered 2020 with aggregate trust fund balances of $75 billion, which on net, now stand at $25 billion. Now 17 states and the Virgin Islands are in the red, the report found.

The states in the worst financial shape, from worst to least worse, include the Virgin Islands, New York, California, Hawaii, Texas, Kentucky, Ohio, Massachusetts, Illinois, Colorado, Connecticut, New Jersey, Minnesota, Louisiana, Pennsylvania, Georgia, and New Mexico.

State unemployment compensation trust funds are in the best shape in Nebraska, Idaho, West Virginia, Mississippi, Utah, and Wyoming.

“A faster-than-expected jobs recovery has helped many states remain solvent,” the report notes.

In July, the Congressional Budget Office projected that the U.S. would return to 6.7 percent unemployment in the first quarter of 2023, a level already reached by November 2020, two years ahead of schedule.

“These significantly lower unemployment levels have stretched unemployment compensation trust funds further than many would have initially expected,” the report adds.

“Unemployment insurance taxes are imposed on a taxable wage base that is generally fairly low, so in many states, the majority – sometimes the overwhelming majority – of all UI tax revenues arrive in the first quarter of each calendar year,’ the report states. “States can, therefore, look forward to a substantial boost in trust fund balances in the early months of 2021. Nevertheless, outlooks in some states remain gloomy.”

The Tax Foundation notes that states will ultimately need to raise unemployment taxes to pay back their advances and replenish their trust funds.