This past week, another 3.4 million Americans filed new unemployment claims. While that is the third week in a row of declining new unemployment claims (new claims peaked at over 6.2 million the week of April 5th), it is still among the highest levels in US history by a wide margin. The cumulative numbers are now stacking up to an astronomical level. The two important data points are “new” unemployment claims and “continuing” unemployment claims. Those two metrics now stand at over 21.2 million.
The Tax Foundation in Washington D.C. published this updated chart after this week’s data was reported.
What is most alarming about this chart is the Great Recession average in the gray area down around the 5 million mark. We are now sitting at a level which is more than four times that. This begs the question of how the various states’ unemployment compensation trust funds are weathering the storm.
Unfortunately, there are now some states that have only enough in their trust funds to last a few more weeks. Illinois has three weeks left, while California, Connecticut, Kentucky and Texas have two weeks left. Four states – Massachusetts, New York, Ohio and West Virginia now have only one week left before running dry. This updated map from the Tax Foundation shows how all the various states sit at this point.
Thankfully, Utah is in a good spot sitting at the fourth best position in the nation with 27 weeks remaining in our trust fund if continuing claims were to remain at the current level.
One might ask what happens next when these other poorly managed states run dry? According to the US Treasury Department, these states can apply for federal loans. California, Illinois and Connecticut have already been approved for loans and it is reported that New York has filed as well. States must repay these loans with interest starting in 2021 and if they still have outstanding balances after two years employers in these states will face higher unemployment insurance taxes to compensate for those amounts until they are paid off. Since Utah is in a good position, our employers can hopefully avoid that happening since our trust fund balance is strong and should be sufficient to meet the needs of our state without any loans from the federal government
One of the reasons for Utah’s enviable position now can be attributed to work done by your Taxpayers Association and the legislature almost four decades ago. A three-factor formula for calculating the unemployment insurance tax rate that employers pay. These employers pay into the trust fund which eliminated the industrial classification rate for an employer experience rate based on the actual claims by former employees of each individual employer. The second factor of the rate ensures viability of Utah’s unemployment insurance fund reserves. The third factor is a social rate to cover claims of former employees of employers who have gone out of business. The social rate is expected to increase costs for all employers as the pandemic increases bankruptcies. The formula for calculating those benefits can be found here.
Essentially, companies that had a good record of low claims by former employees over the previous four years pay a lower amount into the trust fund. Previous to that, employers had to pay into the system based on how their entire industry handled layoffs. Since that change was made it has encouraged good behavior by companies with greater accountability and less socialization of the cost of benefits.
When combined with the relatively higher ethical standards of Utah’s workforce, timely payments into the system by Utah’s employers and a business friendly environment that has encouraged growth and investment in Utah companies and jobs, Utah is now seeing the dividends of those good policies with a healthy balance in the unemployment trust fund during this pandemic.