[My colleague Kathleen Bryant took the lead on this piece–JB]
Given the recent dramatic spike in media coverage of our economic headwinds and recession readiness over the past week, we decided to take a closer look at the balance sheets of state unemployment insurance (UI) trust funds. While the Department of Labor (DOL) is responsible for overseeing the UI system and paying administrative costs, the basic program is managed and mostly funded by the states. Using the most recent final data available from the Treasury Department, we analyzed the number of state UI trust funds that meet DOL’s recommended minimum solvency standard. This standard is measured using a ratio called the “Average High Cost Multiple,” where a value of 1 means that trust fund reserves could pay out at least 1 year of benefits during a recession of average depth– states with an AHCM greater than 1 have met DOL’s recommended minimum solvency level.
There are 18 states that have not met DOL’s minimum solvency standard (as of July 2019), including some of the most densely populated states in the country– California, Texas, and New York. Congress should be closely monitoring the balance sheets of state UI trust funds and should be prepared to ramp up federal spending on UI when the next recession hits, considering the financial status of many state trust funds.
Source: The Department of Labor, the Department of Treasury