US House Supports Unemployment Insurance Trust Fund Relief
Rep. Danny Davis plans to introduce legislation that will retroactively remove interest accrual on Unemployment Insurance (UI) Trust Fund loans from September 6, 2021 through September 30, 2022. The House is proud to support this bill and the significant relief it will bring. provide states and businesses.
Just before Covid made its first appearance in the United States, thirty-one states had a solvent and healthy trust fund for unemployment insurance. This meant that each state had built up a sufficient reserve to pay unemployment insurance benefits to a projected number of eligible claimants during a recession without having to borrow money from the federal government. Despite preparations, trust funds in most states have been unable to support the extraordinary number of unemployment insurance claimants introduced by the pandemic. At the height of the pandemic, 23 states borrowed money from the federal government to pay regular unemployment insurance benefits. Most of these states have been able to repay their loans and replenish their trust funds. Nine states, however, collectively still owe more than $40 billion today. Also, interest payments on the loans are due on September 30 of this year. This bill currently stands at over $330 million and will continue to rise.
Congress recognized early on that states would need help funding unemployment insurance. First, Congress waived interest accrual on Unemployment Insurance Trust Fund loans through September 6, 2021. States and employers continue to grapple with labor shortages, which increases the difficulty of generating unemployment insurance tax revenue. To counter these hurdles, the House is calling on Congress to support the reinstatement of the interest waiver that will allow states to settle outstanding loans and interest payments without the meter running. Second, Congress has earmarked $350 billion for state and local fiscal stimulus funds (SLRFF) under ARPA for states to respond to the public health emergency. The House urges states to use SLFRF funds for outstanding loans or accrued interest, or to replenish the state unemployment insurance trust fund to pre-pandemic levels. States should be aware that by The Treasury’s Final Rulechanges to a state’s maximum benefit entitlement are prohibited if SLFRF funds are used for outstanding loans or interest payments.
Inaction has consequences. The most obvious is an increase in the effective federal unemployment insurance tax rate for each state. Specifically, businesses in states that have a two-year Unemployment Insurance Trust Fund Loan will experience a 0.3% decrease in Federal Unemployment Tax Act tax credits. (FUTA). Credit reductions will continue each year until the loan is fully repaid. If the nine states maintain a balance through 2023, more than 4 million employers will experience a tax hike. Employers are also likely to face state unemployment insurance (SUI) tax increases as states consider methods to repay outstanding loans and replenish trust funds. Implementing these tax hikes as businesses face labor shortages, supply chain issues and inflation will only prolong the full economic recovery. In addition to employers, the workforce of these states is also at risk. After the Great Recession, states reduced the amounts and durations of unemployment insurance benefits in order to conserve their unemployment insurance trust funds. While this approach should remain fully an option for the state, it need not be used if the above mechanisms are deployed.
Unless leaders at the federal and state levels work together to quickly settle this debt, employers and workers will feel the impact.
About the authors
Senior Manager, Employment Policy