Some States Demonstrate the Best Way to Replenish Unemployment Insurance Funds, Others Show What Not to Do

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Posted by Drew Carlson on Tuesday, October 19th, 2021, 11:02 AM PERMALINK

Across the country, states have depleted their unemployment insurance funds responding to the massive job losses precipitated by last year’s lockdown-driven economic downturn. Some states have since replenished these trust funds, but lawmakers in most states still need to take action to do so, otherwise businesses will be hit with payroll tax hikes that make it even more expensive to hire new workers.  

The Tax Foundation notes that “states have paid out $175 billion in unemployment benefits since the start of the pandemic, with the federal government providing an additional $660 billion.” Because of this, “taking debt into account, state trust funds now have a negative aggregate balance of -$11 billion and are $115 billion shy of minimum adequate solvency levels.” 

Fortunately for governors and lawmakers in these states, they have approximately $95 billion in federal cash from the American Rescue Plan Act (ARPA) available to them that can be used to refill unemployment insurance (UI) trust funds and repay UI related federal debt. However, instead of using federal aid to replenish these funds, governors in several states would rather foot the bill through payroll tax hikes. 

As the Illinois Policy Institute note, "the two ways states can fund their trusts are by either increasing employer payroll taxes or cutting benefits for the unemployed.” 

Unfortunately for Illinois taxpayers, their governor seems set on paying the state’s UI debt through the former, even though there are billions in federal funds available that could be tapped as an alternative to higher taxes on employers. Illinois took out a $4.2 billion federal loan last year to refill its unemployment fund. Illinois last month missed the deadline to repay this debt, “which leaves Illinois taxpayers on the hook to pay $60 million in annual interest on that loan,” notes IPI. notes IPI.  

Similarly in New Jersey, it was recently reported that “Gov. Phil Murphy remains noncommittal about using federal COVID relief money to offset millions of dollars that New Jersey small businesses must pay to replenish the state’s Unemployment Insurance (UI) fund.”.  

New Jersey has $6.2 billion in federal aid available, more than enough to cover the $885 million needed to replenish the fund. With the economic hardships brought on by the lockdowns and record unemployment levels, higher taxes are the last thing businesses need. To raise taxes instead of using readily available ARPA funds is inexcusable.  

In contrast to Illinois and New Jersey, where Democratic governors are declining to use readily available federal funds to replenish UI funds instead of resorting to state tax hikes, lawmakers in Texas are refilling their UI trust fund and pay off day with the federal funds that ARPA made available to the state. Before the Texas Legislature’s special session ended early this morning, the lawmakers approved Senate Bill 8, which applies more than $7 billion in federal funds toward the state’s UI trust fund. Unlike in Illinois and New Jersey, Texas lawmakers are using ARPA funds for their designed purpose and avoid employer tax hikes in the process.  

Raising taxes to refill the unemployment funds is inexcusable when state lawmakers and governors have billions in federal funds that can and should be used for that purpose. Congress sent states hundreds of billions of dollars to help them pay for pandemic-related expenses. For state officials not to use those funds to refill their UI funds, and to raise taxes instead, is a betrayal of taxpayers. As the aforementioned states are demonstrating, some states, like Texas, will take the optimal approach, while states like Illinois and New Jersey will serve as examples of what not to do, just as they do with so many other policy matters.  

Unfortunately for Illinois taxpayers, their governor seems set on paying the state’s UI debt through the former, even though there are billions in federal funds available that could be tapped as an alternative to higher taxes on employers. Illinois took out a $4.2 billion federal loan last year to refill its unemployment fund. Illinois last month missed the deadline to repay this debt, “which leaves Illinois taxpayers on the hook to pay $60 million in annual interest on that loan,” notes IPI. notes IPI.  

Similarly in New Jersey, it was recently reported that “Gov. Phil Murphy remains noncommittal about using federal COVID relief money to offset millions of dollars that New Jersey small businesses must pay to replenish the state’s Unemployment Insurance (UI) fund.”.  

New Jersey has $6.2 billion in federal aid available, more than enough to cover the $885 million needed to replenish the fund. With the economic hardships brought on by the lockdowns and record unemployment levels, higher taxes are the last thing businesses need. To raise taxes instead of using readily available ARPA funds is inexcusable.  

In contrast to Illinois and New Jersey, where Democratic governors are declining to use readily available federal funds to replenish UI funds instead of resorting to state tax hikes, lawmakers in Texas are poised to refill their UI trust fund and pay off day with the federal funds that ARPA made available to the state.  

The Texas legislature is advancing Senate Bill 8, which applies more than $7 billion in federal funds toward the state’s UI trust fund. Unlike in Illinois and New Jersey, Texas lawmakers are preparing to use ARPA funds for their designed purpose and avoid employer tax hikes in the process.  

Raising taxes to refill the unemployment funds is inexcusable when state lawmakers and governors have billions in federal funds that can and should be used for that purpose. Congress sent states hundreds of billions of dollars to help them pay for pandemic-related expenses. For state officials not to use those funds to refill their UI funds, and to raise taxes instead, is a betrayal of taxpayers. As the aforementioned states are demonstrating, some states, like Texas, will take the optimal approach, while states like Illinois and New Jersey will serve as examples of what not to do, just as they do with so many other policy matters.  

Photo Credit: “Hearne TX - storefront.jpg” by Matthew Rutledge is licensed under CC BY 2.0.

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