U.S. Chamber Supports UI Trust Fund Relief

U.S. Chamber Supports UI Trust Fund Relief

Representative Danny Davis plans to introduce legislation that will retroactively waive the accrual of interest on unemployment insurance (UI) trust fund loans from September 6, 2021, to September 30, 2022. The Chamber is proud to support this bill and the meaningful relief it will provide to states and businesses.

Just before Covid made its first appearance in the U.S., thirty-one states had a solvent, healthy UI trust fund. This meant that each state built up enough of a reserve to pay UI benefits to a projected number of eligible claimants during a recessionary period without having to borrow money from the federal government. Despite preparations, most states’ trust funds were unable to support the extraordinary number of UI claimants ushered in by the Pandemic. At the height of the Pandemic, 23 states borrowed money from the federal government to pay regular UI benefits. Most of these states were able to repay their loans and replenish their trust funds. Nine states, however, still collectively owe more than $40 billion today. Additionally, interest payments on the loans are due September 30 of this year. That bill is currently more than $330 million and will continue to grow.

Congress recognized early on that states would need assistance in financing UI. First, Congress waived the accrual of interest on UI trust fund loans through September 6, 2021. States and employers continue to struggle with labor shortages, increasing the difficulty of generating UI tax revenues. To counter this obstacle, the Chamber calls on Congress to support the reinstatement of the interest waiver which will allow states to address outstanding loans and interest payments without incurring more debt. Second, Congress appropriated $350 billion in State & Local Fiscal Recovery Funds (SLFRF) as part of ARPA for states to respond to the public health emergency. The Chamber urges states to use the SLFRF funds towards outstanding loans or accrued interest, or to replenish the state’s UI trust fund to pre-pandemic levels. States must be aware that per Treasury’s final rule, changes to a state’s maximum benefit entitlement are prohibited if SLFRF funds are used towards outstanding loans or interest payments.

There are consequences for inaction. The most obvious is an increase in the effective federal UI tax rate for each state. Specifically, businesses within states that have an outstanding UI trust fund loan for two years will suffer a .3% decrease in Federal Unemployment Tax Act (FUTA) tax credits. Decreases in the credits will continue annually until the loan is repaid in full.  If all nine states carry a balance into 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. Implementation of these tax hikes while businesses are facing labor shortages, supply chain challenges, and inflation will only prolong full economic recovery. Along with employers, the labor forces in these states are also at risk. Following the Great Recession, states decreased UI benefit amounts and durations as way to conserve their UI trust funds. While this approach should fully remain as an option for the state, it doesn’t have to be utilized if the aforementioned mechanisms are deployed.

Unless leaders at the federal and state levels work together to address this debt soon, employers and workers alike will bear the impact.

About the authors

Stephanie Ferguson

Stephanie Ferguson is the Director of Global Employment Policy & Special Initiatives. Her work on the labor shortage has been cited in the Wall Street Journal, Washington Post, and Associated Press.

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