Lessons Left Unlearned: Unemployment Insurance Financing After the Great Recession

The purpose of this current report is to revisit the trust fund crisis of 2010 to answer three hypothetical questions:

1. Could the trust fund solvency crisis have been avoided had all states accumulated the amount of pre-recession trust fund reserves recommended by financing experts?
2. How much did employers need to contribute on a per-employee basis to have ensured adequate pre-recession trust fund reserves?
3. By how much will employer contributions need to increase in the future for state trust funds to prepare for the next recession?

The remainder of the paper is structured as follows: Section 1 provides a brief overview of the UI program, the financing of UI benefits, and a history of previous financing crises. Section 2 summarizes the extent of borrowing during the Great Recession and places today's crisis in a historical context. Section 3 compares three generally accepted measures of solvency and shows how only a handful of states met even the least rigorous of the measures going into the recent recession. Sections 4 to 6 apply a basic accounting framework to estimate (1) the number of states that would have borrowed had all states entered the recession with adequate reserves; (2) the amount of employer contributions that would have been necessary following the 2001 recession for all state trust funds to have been prepared for the recent recession; and (3) the amount of new reserves necessary for states to be solvent by the end of 2016. The paper concludes with a brief discussion of the UI financing factors that determine a state's capacity to accumulate pre-recession trust fund reserves.