Federal Neglect Leaves State Unemployment Systems in a State of Disrepair

The Unemployment Insurance (UI) system has been put to the test by the Great Recession and the ensuing slow economic recovery. The prolonged duration of historically high unemployment and long-term unemployment has required state UI programs to process record numbers of claims in spite of chronic federal underfunding and long-outdated technology.
These challenges have exposed a UI benefit system in a state of disrepair — a system that forces laid-off workers already struggling to find work to navigate extensive backlogs, jammed phone lines and often-unreliable online claims systems. These breakdowns threaten to undermine the most basic tenets of the program — accessible, efficient claim-filing and timely eligibility determinations and payments.
The federal government bears much of the blame for the poor condition of the state UI administrative system that processes UI claims. For decades, Congress has neglected to adjust state administrative funding for inflation, employment growth, or the need for continuing capital investments such as information technology (IT) infrastructure upgrades. In fact, budget requests that were based on workload needs have often been reduced by Congress. This underfinancing has occurred despite the fact that state administration of the UI program has its own dedicated funding stream from the unemployment insurance taxes collected by the IRS. This lack of federal attention, investment, and oversight for UI administration has severely impacted the capacity of states to properly administer their UI programs, thereby frustrating the purpose of the program to soften the economic blow of job loss for workers, their families and hard-hit communities. And now, Congress is compounding the situation by imposing nearly $200 million in new cuts to the program as a result of the recent federal “sequester” of administrative funding to the states.
In addition, as recent examples have shown, when states do move to modernize and upgrade outdated computer systems for their UI programs, or make changes to their phone systems, too often they experience significant disruptions of service, systems breakdowns and further claims backlogs and delays. With the average state UI systems technology now 26 years old, states should be encouraged to upgrade outmoded technologies — but they should have the level of funding and expertise to do so in a manner that does not, even temporarily, disrupt the intended functions of their UI programs for claimants or agency personnel. That is a goal that should be attainable, but it has too often evaded the state UI programs. In contrast, one doesn’t hear banks or credit card companies saying they are not able to process checks or transactions for a number of days due to an upgrade of their computer systems. The neglected state of the UI system, which has been prominently featured in local press accounts across the country, harshly affects millions of unemployed workers and their families when hard times hit.
Yet, the problem persists but has gained little attention from policymakers at the national level, where Congress and the executive branch determine the fate of the program. This report documents the escalating severity of the crisis of a system pushed to its limits by inadequate federal funding and support and provides a series of modest recommendations for reform to help put the system back on track and better prepare it to meet the challenges of a century U.S. economy.
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