State Unemployment Insurance Trust Fund Solvency:
How Are States Doing in the Continuing Job Slump?
February, 2004
By National Employment Law Project

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Executive Summary

• Despite three years of higher UI claims due to the 2001 recession and continuing job slump, the majority of states have entered 2004 with adequate UI trust fund reserves. Assuming that the job market recovers sometime this year, state UI trust funds have sufficient reserves and have performed well overall. With unemployment and loss of jobs as central concerns of the public, rebuilding UI safety nets to better serve workers makes sense, especially in the majority of states with above-average solvency.
  
• States entered the recession in 2001 with $54.05 billion in UI trust fund reserves, a notable overall amount that was still below accepted levels of pre-recession solvency. Going into 2004, a number of states have impressive levels of UI reserves considering the lingering job slump. In fact, 18 states enter 2004 with balances that meet solvency guidelines for reserves prior to a recession.
  
• Fourteen states have 3rd quarter 2003 reserve ratios (percent of total wages held as trust fund reserves) over 2.0 (Alaska, Hawaii, Iowa, Louisiana, Maine, Mississippi, Montana, New Mexico, Oregon, Puerto Rico, Utah, Vermont, Virgin Islands, and Wyoming) and seventeen have average high cost multiples (AHCMs) over 1.0 (Arizona, Delaware, District of Columbia, Hawaii, Iowa, Louisiana, Maine, Mississippi, Montana, New Hampshire, New Mexico, Oregon, Puerto Rico, Utah, Vermont, Virgin Islands, and Wyoming).
  
• One dozen states face immediate UI trust fund solvency challenges in 2004. They are Alabama, California, Colorado, Illinois, Massachusetts, Minnesota, Missouri, New York, North Carolina, South Dakota, Texas, and Virginia. Other states will join this group if the job slump continues or their UI payroll taxes don’t rise to meet the demands created by 3 years of higher UI claims.
  
• A number of states with highly solvent UI trust fund reserves have serious shortcomings in their UI programs. Arizona, Florida, Indiana, Kansas, Louisiana, Maryland, Mississippi, New Hampshire, Oklahoma, Puerto Rico, South Carolina, Utah and Wyoming stand out as highly solvent jurisdictions with inadequate benefit levels and/or below average levels of UI recipiency.
  
• UI reforms targeted at low-wage and part-time workers have modest costs when compared to the advantages experienced by jobless workers helped by these reforms. Recommended reforms that have been adopted in a number of states include the alternate base period (ABP), part-time UI eligibility, and recognizing expanded reasons for good cause for leaving work. The cost of these reforms is modest and affordable even in states without adequate reserves.
  
• Maintaining or restoring UI trust fund solvency requires that states have policies that provide forward funding of their UI programs. Recommended policies are indexing taxable wage bases, having adequate maximum UI payroll tax rates, and setting minimum tax rates above zero.