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entitled 'Unemployment Insurance Trust Funds: Long-standing State 
Financing Policies Have Increased Risk of Insolvency' which was 
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Report to the Chairman, Subcommittee on Income Security and Family 
Support, Committee on Ways and Means, House of Representatives: 

United States Government Accountability Office: 
GAO: 

April 2010: 

Unemployment Insurance Trust Funds: 

Long-standing State Financing Policies Have Increased Risk of 
Insolvency: 

GAO-10-440: 

GAO Highlights: 

Highlights of GAO-10-440, a report to the Chairman, Subcommittee on 
Income Security and Family Support, Committee on Ways and Means, House 
of Representatives. 

Why GAO Did This Study: 

The federal-state unemployment insurance (UI) program relies on state 
trust funds to hold enough reserves to meet benefit needs during 
economic downturns. The sufficiency of such “forward funding” has been 
a policy concern for decades, particularly during the recent 
recession, which has caused very high unemployment rates. While the 
economy added jobs in March 2010, unemployment remains very high and 
has continued to rise in most states, suggesting that state UI 
programs will continue to face serious financial challenges for at 
least the near future. 

This report (1) describes the current condition of state UI trust 
funds, (2) highlights policies or practices that have contributed to 
their conditions, and (3) identifies options for improving UI forward 
funding in the future. To address these questions, GAO analyzed 
statistics from the Department of Labor, reviewed applicable laws and 
regulations, interviewed state UI representatives and UI experts, and 
synthesized GAO’s and others’ findings to present policy options. 

What GAO Found: 

By any measure, state UI trust funds are in historically poor 
financial condition. As of April 1, 2010, 34 of the 53 state trust 
funds have outstanding loans totaling $38.9 billion from the federal 
government to pay benefits (see figure), and as of the end of 2009 no 
state had enough reserves to cover 12 months of benefits at 
historically high rates. Aggregate reserves net of loans measured -
$15.4 billion as of the end of 2009, the lowest level in the program’s 
history. Despite UI tax rates that are expected to rise significantly 
in many states in 2010, the Department of Labor projects that net UI 
reserves will remain negative for several years. 

Long-standing UI tax policies and practices in many states over 3 
decades have eroded trust fund reserves, leaving states in a weak 
position prior to the recent recession. While benefits over this 
period have remained largely flat relative to wages, employer tax 
rates have declined. Specifically, most state taxable wage bases have 
not kept up with increases in wages, and many employers pay very low 
tax rates on these wage bases. 

Options to improve state UI trust fund financial conditions include 
raising and indexing the taxable wage base under the Federal 
Unemployment Tax Act (FUTA), which could induce many states to raise 
and index their own bases, and reducing the number of both employers 
paying very low rates and those that pay less in UI taxes than 
benefits paid to their former workers. Other options include adjusting 
state tax rates more frequently; raising solvency targets before 
lowering rates; setting additional conditions to receive interest-free 
federal loans; and raising interest credits for well funded trust 
funds. Now is the time to consider changes to policies to improve the 
long-term financial structure of UI trust funds. 

Figure: Financial Condition of State UI Trust Funds: 

[Refer to PDF for image: map of the U.S., with associated data] 

Map depicts states in the following categories: 

Status of UI trust funds: States with relatively weak trust funds 
(loans outstanding as of April 1, 2010): 35 states. 

Status of UI trust funds: States with relatively strong trust funds 
(at least 1 percent of annual UI-covered wages, as of fourth quarter 
2009): 14 states. 

Note: States highlighted in white did not have an outstanding loan as 
of April 1, 2010, and had trust funds with less than 1 percent of 
wages in reserves as of fourth quarter 2009. 

Source: Employment and Training Administration, Department of Labor. 

[End of figure] 

What GAO Recommends: 

The Congress should begin to consider options to improve trust fund 
solvency, including raising the FUTA taxable wage base from its 
current level of $7,000 and indexing this base to average annual 
wages. GAO received comments from the Department of Labor that 
generally concur with our findings and conclusions. 

View [hyperlink, http://www.gao.gov/products/GAO-10-440] or key 
components. For more information, contact Andrew Sherrill at (202) 512-
7215 or sherrilla@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

State UI Trust Funds Are at Historically Weak Levels, with Most 
Requiring Federal Loans to Pay Benefits: 

Long-standing State UI Policies and Practices Have Led to Trust Fund 
Vulnerability: 

Among Policy Options, Revenue-Related Reforms May Hold Key to 
Improving UI Trust Fund Solvency: 

Conclusions: 

Matter for Congressional Consideration: 

Agency Comments: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Unemployment Insurance Measures in the American Recovery 
and Reinvestment Act: 

Appendix III: Major Characteristics of State UI Programs, as of March 
2010: 

Appendix IV: Various UI Program Statistics: 

Appendix V: Comments from the Department of Labor: 

Appendix VI: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: Summary of Major UI Federal Accounts: 

Table 2: State UI Trust Fund Financial Conditions as of End of 2007 
vs. End of 2009: 

Table 3: Key Trust Fund and Employment Statistics for Last Four U.S. 
Recessions: 

Table 4: UI Financial Statistics, States with Indexed Taxable Wage 
Bases vs. Other States, 1979-2008: 

Table 5: Distribution of Minimum and Maximum Statutory UI Tax Rates by 
State, 1978 to 2008: 

Table 6: Policy Options for Improving UI Funding: 

Table 7: States with Loans from the Federal Unemployment Account, as 
of December 31, 2009, and April 1, 2010: 

Table 8: UI Contributions, Benefits, and Reserves as a Percentage of 
Total UI-Eligible Wages, 1979-2008: 

Table 9: UI-taxable Wages as a Percentage of Total UI-eligible Wages, 
States with Indexed Taxable Wage Base vs. Other States, 1979-2008: 

Table 10: States with UI Solvency or Social Cost Taxes as of 2010: 

Figures: 

Figure 1: Financial Condition of State UI Trust Funds: 

Figure 2: UI Contributions, Benefits, and Net Reserves, 1979-2008: 

Figure 3: UI Taxable Wage Bases, 2010: 

Figure 4: Comparison of UI-taxable/total Wage Ratio, States with 
Indexed Taxable Wage Bases vs. Other States, 1979-2008: 

Figure 5: Distribution of ARRA UI Modernization Incentive Grants, as 
of Mar. 26, 2010: 

Abbreviations: 

AHCM: average high cost multiple: 

ARRA: American Recovery and Reinvestment Act of 2009: 

CBO: Congressional Budget Office: 

CRS: Congressional Research Service: 

DOL: Department of Labor: 

EB: Federal-State Extended Benefits Program: 

ES: Employment Services: 

ESAA: Employment Security Administration Account: 

ETA: Employment and Training Administration: 

EUC: Emergency Unemployment Compensation Program of 2008: 

EUCA: Extended Unemployment Compensation Account: 

FECA: The Federal Employees Compensation Account: 

FUA: Federal Unemployment Account: 

FUTA: Federal Unemployment Tax Act: 

HCM: high cost multiple: 

IUR: insured unemployment rate: 

UI: unemployment insurance: 

UTF: Unemployment Insurance Trust Fund: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

April 14, 2010: 

The Honorable Jim McDermott: 
Chairman: 
Subcommittee on Income Security and Family Support: 
Committee on Ways and Means:
House of Representatives: 

Dear Mr. Chairman: 

The recession that began in December 2007 has resulted in the worst 
labor market conditions in the United States since at least the early 
1980s, if not since the Great Depression of the 1930s. The federal- 
state unemployment insurance (UI) program provides temporary 
assistance to unemployed workers by replacing a portion of lost wages. 
States maintain reserves, funded through employer taxes, in trust 
funds, out of which they pay UI benefits. However, the severity and 
length of the recent recession, and the slow pace of recovery, have 
placed a heavy demand on state UI trust funds, and many states have 
needed loans from the federal government to continue to pay benefits. 
While preliminary data showed that the economy added the most jobs in 
any month in 3 years during March 2010, unemployment remains very high 
and has continued to increase in most states, suggesting that state UI 
programs will continue to face serious financial challenges for at 
least the near future. 

Concerns over the adequacy of UI trust fund levels are not new. For 
the last 3 decades and particularly during prior recessions, there has 
been concern that some states were not sufficiently funding their 
programs. Two national commissions, one in the early 1980s and the 
other in the mid-1990s, have examined UI financing, as did GAO in 
1988, 1990, and 1993. Each of these studies raised concerns that long-
term state practices in UI financing have been insufficient to fulfill 
the goals of the UI program--to ease individual financial hardship and 
stabilize the economy in periods of unemployment. 

This report (1) describes the current condition of state UI trust 
funds; (2) highlights policies or practices that have contributed to 
their condition; and (3) identifies options for improving UI forward 
funding in the future.[Footnote 1] 

To address these issues, we reviewed UI state statistical data for 
fiscal years 1979 to 2009 from the Department of Labor's (DOL) 
Employment and Training Administration (ETA). With these data, we 
analyzed various measures of individual UI state trust fund levels 
that illustrate the condition of state trust funds. We also reviewed 
applicable federal and state laws, regulations and guidance. We 
reviewed reports by GAO, DOL, the Congressional Budget Office (CBO), 
the Congressional Research Service (CRS), public policy organizations, 
and conducted interviews with DOL officials and UI policy experts from 
the business, labor, academic, and public policy communities. To 
illustrate key factors affecting UI funding in states, we conducted in-
depth interviews with UI program officials from 10 states that 
represent a range of geographic locations, economic conditions, and UI 
trust fund reserve levels. We supplemented these interviews with 
information from related state and federal reports. Finally, to 
identify options for improving UI forward funding, we reviewed past 
conclusions and recommendations in reports by GAO, DOL, CBO, CRS, four 
past government advisory councils on unemployment compensation, and 
public policy organizations, and supplemented this analysis with our 
own conclusions derived from our analysis of UI state statistical data. 

We conducted this performance audit from May 2009 through April 2010 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

Background: 

The Social Security Act of 1935 established the UI program.[Footnote 
2] The primary objectives of UI are to provide temporary, partial 
compensation for lost earnings of individuals who become unemployed 
through no fault of their own, with some exceptions, and to stabilize 
the economy during economic downturns.[Footnote 3] The UI program is a 
federal-state partnership. Although federal law sets certain 
requirements for the program, each state designs its own program 
within the framework of the federal requirements. State and federal 
taxes on employers fund UI benefits and administrative costs. The 
ETA's Office of Unemployment Insurance oversees the states' 
implementation and administration of their UI programs.[Footnote 4] 

UI Federal and State Requirements: 

Federal law sets forth broad coverage provisions for the categories of 
workers that must be covered by the program, some benefit provisions, 
the federal tax base and rate, and administrative requirements, such 
as how states will repay UI trust fund loans. Within the framework 
established by federal law, states can determine key elements of their 
UI programs, such as eligibility/disqualification provisions, the 
benefit amount, and the amount of taxes that employers must pay. 

UI Eligibility: 

States use varying methods to determine eligibility for a claimant to 
receive UI benefits, but all states set a base period of wages and 
employment on which to determine a worker's benefit rights, the 
benefit year during which UI may be collected, and the maximum amount 
of regular UI that a worker may receive in a benefit year. States 
generally base benefits on wages for work in covered employment over a 
12-month period, and most states currently pay regular benefits for up 
to 26 weeks.[Footnote 5] Extended benefits (EB) are provided to 
workers who have exhausted regular unemployment insurance benefits 
during periods of high unemployment.[Footnote 6] The EB program is 
financed in approximately shares by the states and the federal 
government. The basic EB program provides up to 13 additional weeks of 
benefits. Some states have also enacted a voluntary program to pay up 
to 7 additional weeks (20 weeks maximum) of EB during periods of 
extremely high unemployment. This program is in addition to and 
differs from other temporary emergency UI measures passed by the 
Congress in recent recessions, such as the Emergency Unemployment 
Compensation (EUC) program enacted in 2008[Footnote 7] and provisions 
in the American Recovery and Reinvestment Act (ARRA) of 2009.[Footnote 
8] 

UI Financing: 

The UI program was designed to be forward funded and self-financed by 
states, with each trust fund building up reserves from employer taxes 
during periods of economic expansion in order to pay UI benefits 
during economic downturns. Because unemployment can vary substantially 
during a business cycle, it is important that states build sufficient 
trust funds to remain solvent during recessionary times. The program 
is financed primarily by taxes levied on employers.[Footnote 9] Each 
state sets UI tax rates to finance regular UI benefits. In addition, 
employers pay a Federal Unemployment Tax Act (FUTA) tax. The FUTA tax 
on employers is 6.2 percent on the first $7,000 of each employee's 
annual pay.[Footnote 10] Employers in states whose UI programs comply 
with federal requirements receive a tax rate credit of 5.4 percent, 
resulting in an effective rate as low as 0.8 percent, or a maximum of 
$56 per worker per year.[Footnote 11] The FUTA tax is used to fund: 
(1) federal and state UI administration costs;[Footnote 12] (2) the 
federal share of EB; (3) Title XII loans to state trust funds when 
they cannot pay benefits;[Footnote 13] (4) benefits under federal 
supplemental and emergency programs; (5) labor exchange services, 
[Footnote 14] employment and training for veterans; and (6) some labor 
market information programs. 

States choose both a taxable wage base, the annual earnings per worker 
on which employers pay UI taxes, and statutory tax rates that apply to 
the base. In order for employers in their state to qualify for the 
full FUTA tax credit, each state's taxable wage base must at least 
equal the FUTA wage base (currently $7,000, the level since 1983), and 
statutory rates must be experience rated--that is, varying with an 
employer's layoff record. Experience ratings provide reduced rates for 
employers with fewer layoffs and increased rates for those with more 
layoffs. Tax rate assignment may include "socialized" costs that are 
not charged to individual employers, such as costs of benefits to 
employees of firms that went out of business but did not have 
sufficient reserves to pay UI taxes or benefits that are charged to a 
specific employer but are not fully recovered from that firm in tax 
revenue.[Footnote 15] 

The Unemployment Insurance Trust Fund (UTF) in the U.S. Treasury 
consists of 53 state accounts, including one each for the District of 
Columbia, the Virgin Islands, and Puerto Rico, plus 6 federal accounts 
that are dedicated for special purposes. Federal taxes go into the 
Employment Security Administration Account (ESAA), the Extended 
Unemployment Compensation Account (EUCA), and the Federal Unemployment 
Account (FUA), and state taxes go into their individual state accounts 
(see table 1). 

Table 1: Summary of Major UI Federal Accounts: 

Name: ESAA; 
Description: Finances the administration of the state UI and 
employment services (ES) programs. 

Name: EUCA; 
Description: Reimburses states for federal share of extended benefits. 
Permanent extended benefits program provides up to 13 weeks of 
additional UI benefits. 

Name: FUA; 
Description: Provides loans to insolvent state trust funds. 

Name: The Federal Employees Compensation Account (FECA); 
Description: Finances benefit payments to former federal and military 
employees. 

Source: ETA, Comparison of State Unemployment Insurance Laws, January 
1, 2009. 

Note: In addition, there are two accounts related to the Railroad 
Retirement Board that pay UI benefits to railroad workers, the only 
occupational group covered under a separate UI system. They are 
financed by railroad contributions and administered by the Railroad 
Retirement Board. 

[End of table] 

When the ESAA, EUCA, and FUA accounts reach prescribed statutory 
ceilings, the excess funds are transferred to individual state 
accounts under the Reed Act.[Footnote 16] DOL bases each state's share 
of Reed Act funds on the state's proportional share of FUTA taxable 
wages. Federal law restricts states to use Reed Act distributions, the 
mechanism by which the federal government gives surplus cash back to 
states, only to cover the cost of state benefits and administration of 
state UI and ES programs. A state must have a specific appropriation 
from its legislature in order to use its share of the Reed Act funds 
for administrative expenses.[Footnote 17] There have been eight Reed 
Act distributions since 1956, most recently in 2002; the Congress has 
raised the Reed Act's statutory ceilings that trigger the distribution 
of the surplus funds several times.[Footnote 18] 

Almost all states measure their trust fund balances and make tax rate 
changes once per year.[Footnote 19] The majority of states have trust 
fund balance targets written into their state law, with triggers built 
in to adjust the tax rates according to the state's trust fund 
balance. According to DOL, most states impose higher tax rates when 
their UI balances are low and lower rates when their balances are 
high. Nearly half of states with targets base them on a percentage of 
their payrolls or specific dollar amounts. For example, New York 
requires the equivalent of at least 5 percent of its annual payrolls 
in its trust fund to enact its lowest tax schedule; the highest 
schedule applies when the trust fund is less than zero percent of the 
payroll. Other states have trust fund targets that are based on other 
measurements of trust fund levels, such as state-determined experience 
or adjustment factors and some states do not have specific UI trust 
fund goals in their laws. For example, 4 of the 53 states have laws 
that authorize their labor agencies to set the tax rates. State trust 
funds are credited with interest on their balances. 

As UI is forward-funded, states collect trust fund reserves in advance 
to pay benefits. However, during exceptional periods when states 
exhaust their UI reserves, they may borrow from the federal 
government. States can, under certain conditions, borrow interest 
free, as long as the loan is repaid by September 30 of the year of the 
loan (a "cash flow" loan).[Footnote 20] If a state has an outstanding 
loan balance on January 1 for 2 consecutive years, the full amount of 
the loan must be repaid by November 10 of the second year, or 
employers in that state lose 0.3 percent of the FUTA tax credit each 
year there is an unpaid balance. For example, if a state borrows to 
pay UI benefits and has an outstanding loan balance on the second 
subsequent January 1, the FUTA tax credit falls from 5.4 to 5.1 
percent, and employers' effective FUTA rate jumps from 0.8 percent to 
1.1 percent. However, states with outstanding loans can still seek 
relief from these loan provisions. If state trust funds meet specific 
requirements, such as not taking any action during the previous year 
that would diminish the solvency of their trust fund, the reduction in 
the FUTA credit may be capped.[Footnote 21] States that have an 
average total unemployment rate of 13.5 percent or more[Footnote 22] 
can also delay payment of interest for a grace period of up to 9 
months.[Footnote 23] Some states have also chosen to secure loans in 
the private bond market, using the proceeds from private loans to 
repay borrowing from the federal government, and then levying higher 
payroll taxes on employers in subsequent years to repay the private 
loans. 

Measures of UI Solvency: 

Measures of UI solvency are expressed as a percentage of wages, 
typically total annual wages earned by employees who are potentially 
eligible for receiving UI benefits (or "UI-covered wages").[Footnote 
24] ETA reports reserve ratios, or UI trust fund levels as a 
percentage of total annual statewide wages, as well as high cost 
multiple (HCM), which divides the reserve ratio by the high cost rate, 
the highest historical ratio of benefits to wages for a 12-month 
period in that state. An HCM of 1.0 corresponds to sufficient reserves 
to pay benefits at the high cost rate for 1 year. A similar measure is 
the average high cost multiple (AHCM), which divides a trust fund's 
reserve ratio by the average high cost rate, which is the average of 
the 3 highest calendar year benefit cost rates in the last 20 years or 
in the period covering the last 3 recessions, if longer. An AHCM of 
1.0 is the target level of solvency recommended by the Advisory 
Council on Unemployment Compensation and is inherent in DOL's draft 
regulations on cash-flow loans. 

Past Studies of UI Trust Fund Solvency: 

UI reform, particularly with respect to financing the program, has 
been a longstanding (albeit sporadic) policy concern for the federal 
government, state workforce agencies that administer the program, and 
advocacy organizations. A 1980 national commission expressed concerns 
about the "financial footing" of the program,[Footnote 25] while a 
1988 GAO report raised questions about the effect of long-term UI 
financing inadequacy on future benefit eligibility.[Footnote 26] A 
1988 study of the program by the CRS highlighted the problem of 
insufficient financing.[Footnote 27] In addition, a 1993 GAO report 
found that the ability of the UI program to stabilize the economy had 
diminished,[Footnote 28] and a 1994-96 Advisory Council on 
Unemployment Compensation called for a stronger role for the federal 
government to promote UI forward funding.[Footnote 29] 

State UI Trust Funds Are at Historically Weak Levels, with Most 
Requiring Federal Loans to Pay Benefits: 

By any measure, UI trust funds nationwide are in historically poor 
financial condition. As of the fourth quarter of 2009, reserves in 
state trust funds totaled $11.1 billion, lower than any end-of-year 
total (inflation adjusted) in the program's history and down sharply 
from the $30.0 billion in aggregate reserves at the end of 2008. 
Reserve levels look even weaker when one considers that fund levels 
are buoyed by federal loans, which surged during 2009 and continue to 
grow. As of April 1, 2010, 34 state trust funds had taken out federal 
loans totaling $38.9 billion (see figure 1); this total loan balance 
is up almost 50 percent since just December 31, 2009. By comparison, 
24 states required loans during the recession of the early 1980s, 
during which unemployment nationally approached 11 percent. Aggregate 
net reserves (reserves less loans) as of December 31, 2009, measured -
$15.4 billion, the first such deficit since the end of 1983 and the 
lowest level in the program's history. As a result of the huge outflow 
of money to state trust funds, the FUA has had to borrow $33.9 billion 
from the general fund as of April 7, 2010; the Department of Labor 
projects FUA borrowing to more than double by 2012. 

Figure 1: Financial Condition of State UI Trust Funds: 

[Refer to PDF for image: U.S. map] 

Status of UI trust funds: States with relatively weak trust funds 
(loans outstanding as of April 1, 2010): 35 states: 
Alabama: 
Arizona: 
Arkansas: 
California: 
Colorado: 
Connecticut: 
Delaware: 
Florida: 
Georgia: 
Hawaii: 
Idaho: 
Illinois: 
Indiana: 
Kansas: 
Kentucky: 
Maryland: 
Massachusetts: 
Michigan: 
Minnesota: 
Missouri: 
Nevada: 
New Hampshire: 
New Jersey: 
New York: 
North Carolina: 
Ohio: 
Pennsylvania: 
Rhode Island: 
South Carolina: 
South Dakota: 
Texas: 
Vermont: 
Virgin Islands: 
Virginia: 
Wisconsin. 

Status of UI trust funds: States with relatively strong trust funds 
(at least 1 percent of annual UI-covered wages, as of fourth quarter 
2009): 14 states: 
Alaska: 
District of Columbia: 
Louisiana: 
Maine: 
Mississippi: 
Montana: 
New Mexico: 
North Dakota: 
Oklahoma: 
Oregon:
Puerto Rico: 
Utah: 
Washington: 
Wyoming. 

Source: Employment and Training Administration, Department of Labor. 

Note: States highlighted in white did not have an outstanding loan as 
of April 1, 2010, and had trust funds with less than 1 percent of 
wages in reserves as of fourth quarter 2009. For more data, see 
appendix IV, table 7. 

[End of figure] 

As of the fourth quarter of 2009, no state had a HCM as high as 1.0 
(which would indicate sufficient reserves to pay benefits at 
historically high rates for 12 months), and only 14 states had 
reserves of at least 1 percent of wages (see figure 1). Each state 
trust fund had a lower balance as of the end of 2009 than as of the 
end of 2007, near the start of the recent recession in December 2007 
(see table 2). In aggregate, state trust fund balances declined by 
$53.6 billion over this period. 

Table 2: State UI Trust Fund Financial Conditions as of End of 2007 
vs. End of 2009: 

Alaska: 
12/31/2007: Net trust fund balance (thousands of dollars): $331,214; 
12/31/2007: High-cost multiple: 0.78; 
12/31/2009: Net trust fund balance (thousands of dollars): $298,439; 
12/31/2009: High-cost multiple: 0.64. 

Alabama: 
12/31/2007: Net trust fund balance (thousands of dollars): $410,640; 
12/31/2007: High-cost multiple: 0.33; 
12/31/2009: Net trust fund balance (thousands of dollars): -$137,148; 
12/31/2009: High-cost multiple: N.A. 

Arkansas: 
12/31/2007: Net trust fund balance (thousands of dollars): $151,132; 
12/31/2007: High-cost multiple: 0.18; 
12/31/2009: Net trust fund balance (thousands of dollars): -$208,639; 
12/31/2009: High-cost multiple: N.A. 

Arizona: 
12/31/2007: Net trust fund balance (thousands of dollars): $990,481; 
12/31/2007: High-cost multiple: 0.44; 
12/31/2009: Net trust fund balance (thousands of dollars): $168,909; 
12/31/2009: High-cost multiple: 0.08. 

California: 
12/31/2007: Net trust fund balance (thousands of dollars): $2,533,133; 
12/31/2007: High-cost multiple: 0.18; 
12/31/2009: Net trust fund balance (thousands of dollars): -$5,873,815; 
12/31/2009: High-cost multiple: N.A. 

Colorado: 
12/31/2007: Net trust fund balance (thousands of dollars): $630,397; 
12/31/2007: High-cost multiple: 0.59; 
12/31/2009: Net trust fund balance (thousands of dollars): $64,579; 
12/31/2009: High-cost multiple: 0.06. 

Connecticut: 
12/31/2007: Net trust fund balance (thousands of dollars): $598,111; 
12/31/2007: High-cost multiple: 0.23; 
12/31/2009: Net trust fund balance (thousands of dollars): -$140,878; 
12/31/2009: High-cost multiple: N.A. 

District of Columbia: 
12/31/2007: Net trust fund balance (thousands of dollars): $400,275; 
12/31/2007: High-cost multiple: 0.80; 
12/31/2009: Net trust fund balance (thousands of dollars): $329,696; 
12/31/2009: High-cost multiple: 0.66. 

Delaware: 
12/31/2007: Net trust fund balance (thousands of dollars): $174,156; 
12/31/2007: High-cost multiple: 0.43; 
12/31/2009: Net trust fund balance (thousands of dollars): $38,828; 
12/31/2009: High-cost multiple: 0.10. 

Florida: 
12/31/2007: Net trust fund balance (thousands of dollars): $2,203,889; 
12/31/2007: High-cost multiple: 0.46; 
12/31/2009: Net trust fund balance (thousands of dollars): -$816,194; 
12/31/2009: High-cost multiple: N.A. 

Georgia: 
12/31/2007: Net trust fund balance (thousands of dollars): $1,281,787; 
12/31/2007: High-cost multiple: 0.42; 
12/31/2009: Net trust fund balance (thousands of dollars): -$51,955; 
12/31/2009: High-cost multiple: N.A. 

Hawaii: 
12/31/2007: Net trust fund balance (thousands of dollars): $556,334; 
12/31/2007: High-cost multiple: 1.50; 
12/31/2009: Net trust fund balance (thousands of dollars): $130,687; 
12/31/2009: High-cost multiple: 0.35. 

Iowa: 
12/31/2007: Net trust fund balance (thousands of dollars): $740,178; 
12/31/2007: High-cost multiple: 0.69; 
12/31/2009: Net trust fund balance (thousands of dollars): v383,905; 
12/31/2009: High-cost multiple: 0.36. 

Idaho: 
12/31/2007: Net trust fund balance (thousands of dollars): $196,048; 
12/31/2007: High-cost multiple: 0.35; 
12/31/2009: Net trust fund balance (thousands of dollars): -$103,659; 
12/31/2009: High-cost multiple: N.A. 

Illinois: 
12/31/2007: Net trust fund balance (thousands of dollars): $1,801,983; 
12/31/2007: High-cost multiple: 0.30; 
12/31/2009: Net trust fund balance (thousands of dollars): -$1,159,558; 
12/31/2009: High-cost multiple: N.A. 

Indiana: 
12/31/2007: Net trust fund balance (thousands of dollars): $306,787; 
12/31/2007: High-cost multiple: 0.20; 
12/31/2009: Net trust fund balance (thousands of dollars): -$1,469,630; 
12/31/2009: High-cost multiple: N.A. 

Kansas: 
12/31/2007: Net trust fund balance (thousands of dollars): $637,983; 
12/31/2007: High-cost multiple: 0.71; 
12/31/2009: Net trust fund balance (thousands of dollars): $119,794; 
12/31/2009: High-cost multiple: 0.14. 

Kentucky: 
12/31/2007: Net trust fund balance (thousands of dollars): $230,766; 
12/31/2007: High-cost multiple: 0.16; 
12/31/2009: Net trust fund balance (thousands of dollars): -$566,263; 
12/31/2009: High-cost multiple: N.A. 

Louisiana: 
12/31/2007: Net trust fund balance (thousands of dollars): $1,444,768; 
12/31/2007: High-cost multiple: 0.82; 
12/31/2009: Net trust fund balance (thousands of dollars): $1,144,195; 
12/31/2009: High-cost multiple: 0.63. 

Massachusetts: 
12/31/2007: Net trust fund balance (thousands of dollars): $1,290,297; 
12/31/2007: High-cost multiple: 0.28; 
12/31/2009: Net trust fund balance (thousands of dollars): $234,162; 
12/31/2009: High-cost multiple: 0.05. 

Maryland: 
12/31/2007: Net trust fund balance (thousands of dollars): $1,016,659; 
12/31/2007: High-cost multiple: 0.52; 
12/31/2009: Net trust fund balance (thousands of dollars): $135,304; 
12/31/2009: High-cost multiple: 0.07. 

Maine: 
12/31/2007: Net trust fund balance (thousands of dollars): $479,164; 
12/31/2007: High-cost multiple: 1.12; 
12/31/2009: Net trust fund balance (thousands of dollars): $335,162; 
12/31/2009: High-cost multiple: 0.82. 

Michigan: 
12/31/2007: Net trust fund balance (thousands of dollars): -$103,489; 
12/31/2007: High-cost multiple: N.A.; 
12/31/2009: Net trust fund balance (thousands of dollars): -$3,044,026; 
12/31/2009: High-cost multiple: N.A. 

Minnesota; 
12/31/2007: Net trust fund balance (thousands of dollars): $545,587; 
12/31/2007: High-cost multiple: 0.30; 
12/31/2009: Net trust fund balance (thousands of dollars): -$271,487; 
12/31/2009: High-cost multiple: N.A. 

Missouri: 
12/31/2007: Net trust fund balance (thousands of dollars): $113,246; 
12/31/2007: High-cost multiple: 0.07; 
12/31/2009: Net trust fund balance (thousands of dollars): -$460,468; 
12/31/2009: High-cost multiple: N.A. 

Mississippi: 
12/31/2007: Net trust fund balance (thousands of dollars): $727,918; 
12/31/2007: High-cost multiple: 1.32; 
12/31/2009: Net trust fund balance (thousands of dollars): $469,903; 
12/31/2009: High-cost multiple: 0.89. 

Montana: 
12/31/2007: Net trust fund balance (thousands of dollars): $280,512; 
12/31/2007: High-cost multiple: 0.82; 
12/31/2009: Net trust fund balance (thousands of dollars): $166,822; 
12/31/2009: High-cost multiple: 0.50. 

North Carolina: 
12/31/2007: Net trust fund balance (thousands of dollars): $394,426; 
12/31/2007: High-cost multiple: 0.13; 
12/31/2009: Net trust fund balance (thousands of dollars): -$1,587,455; 
12/31/2009: High-cost multiple: N.A. 

North Dakota: 
12/31/2007: Net trust fund balance (thousands of dollars): $134,442; 
12/31/2007: High-cost multiple: 0.72; 
12/31/2009: Net trust fund balance (thousands of dollars): $98,997; 
12/31/2009: High-cost multiple: 0.47. 

Nebraska: 
12/31/2007: Net trust fund balance (thousands of dollars): $278,865; 
12/31/2007: High-cost multiple: 0.74; 
12/31/2009: Net trust fund balance (thousands of dollars): $167,832; 
12/31/2009: High-cost multiple: 0.44. 

New Hampshire: 
12/31/2007: Net trust fund balance (thousands of dollars): v240,422; 
12/31/2007: High-cost multiple: 0.43; 
12/31/2009: Net trust fund balance (thousands of dollars): $17,905; 
12/31/2009: High-cost multiple: 0.04. 

New Jersey: 
12/31/2007: Net trust fund balance (thousands of dollars): $650,449; 
12/31/2007: High-cost multiple: 0.11; 
12/31/2009: Net trust fund balance (thousands of dollars): -$894,641; 
12/31/2009: High-cost multiple: N.A. 

New Mexico: 
12/31/2007: Net trust fund balance (thousands of dollars): $575,524; 
12/31/2007: High-cost multiple: 1.58; 
12/31/2009: Net trust fund balance (thousands of dollars): $281,026; 
12/31/2009: High-cost multiple: 0.79. 

Nevada: 
12/31/2007: Net trust fund balance (thousands of dollars): $793,215; 
12/31/2007: High-cost multiple: 0.63; 
12/31/2009: Net trust fund balance (thousands of dollars): -$85,593; 
12/31/2009: High-cost multiple: N.A. 

New York: 
12/31/2007: Net trust fund balance (thousands of dollars): $429,723; 
12/31/2007: High-cost multiple: 0.04; 
12/31/2009: Net trust fund balance (thousands of dollars): -$2,118,436; 
12/31/2009: High-cost multiple: N.A. 

Ohio: 
12/31/2007: Net trust fund balance (thousands of dollars): $444,530; 
12/31/2007: High-cost multiple: 0.09; 
12/31/2009: Net trust fund balance (thousands of dollars): -$1,692,542; 
12/31/2009: High-cost multiple: N.A. 

Oklahoma: 
12/31/2007: Net trust fund balance (thousands of dollars): $831,388; 
12/31/2007: High-cost multiple: 1.42; 
12/31/2009: Net trust fund balance (thousands of dollars): $488,513; 
12/31/2009: High-cost multiple: 0.80. 

Oregon: 
12/31/2007: Net trust fund balance (thousands of dollars): $1,933,225; 
12/31/2007: High-cost multiple: 1.14; 
12/31/2009: Net trust fund balance (thousands of dollars): $1,050,277; 
12/31/2009: High-cost multiple: 0.65. 

Pennsylvania: 
12/31/2007: Net trust fund balance (thousands of dollars): $1,545,652; 
12/31/2007: High-cost multiple: 0.25; 
12/31/2009: Net trust fund balance (thousands of dollars): -$1,754,681; 
12/31/2009: High-cost multiple: N.A. 

Puerto Rico: 
12/31/2007: Net trust fund balance (thousands of dollars): $529,260; 
12/31/2007: High-cost multiple: 0.73; 
12/31/2009: Net trust fund balance (thousands of dollars): $397,376; 
12/31/2009: High-cost multiple: 0.56. 

Rhode Island: 
12/31/2007: Net trust fund balance (thousands of dollars): $159,901; 
12/31/2007: High-cost multiple: 0.25; 
12/31/2009: Net trust fund balance (thousands of dollars): -$125,592; 
12/31/2009: High-cost multiple: N.A. 

South Carolina: 
12/31/2007: Net trust fund balance (thousands of dollars): $199,183; 
12/31/2007: High-cost multiple: 0.13; 
12/31/2009: Net trust fund balance (thousands of dollars): -$682,073; 
12/31/2009: High-cost multiple: N.A. 

South Dakota: 
12/31/2007: Net trust fund balance (thousands of dollars): $24,680; 
12/31/2007: High-cost multiple: 0.25; 
12/31/2009: Net trust fund balance (thousands of dollars): -$6,510; 
12/31/2009: High-cost multiple: N.A. 

Tennessee: 
12/31/2007: Net trust fund balance (thousands of dollars): $566,161; 
12/31/2007: High-cost multiple: 0.30; 
12/31/2009: Net trust fund balance (thousands of dollars): $167,600; 
12/31/2009: High-cost multiple: 0.10. 

Texas: 
12/31/2007: Net trust fund balance (thousands of dollars): $1,774,694; 
12/31/2007: High-cost multiple: 0.40; 
12/31/2009: Net trust fund balance (thousands of dollars): -$1,282,382; 
12/31/2009: High-cost multiple: N.A. 

Utah: 
12/31/2007: Net trust fund balance (thousands of dollars): $842,680; 
12/31/2007: High-cost multiple: 1.15; 
12/31/2009: Net trust fund balance (thousands of dollars): $492,923; 
12/31/2009: High-cost multiple: 0.71. 

Virginia: 
12/31/2007: Net trust fund balance (thousands of dollars): $775,202; 
12/31/2007: High-cost multiple: 0.44; 
12/31/2009: Net trust fund balance (thousands of dollars): -$53,882; 
12/31/2009: High-cost multiple: N.A. 

Virgin Islands: 
12/31/2007: Net trust fund balance (thousands of dollars): $22,287; 
12/31/2007: High-cost multiple: 0.68; 
12/31/2009: Net trust fund balance (thousands of dollars): -$7,577; 
12/31/2009: High-cost multiple: N.A. 

Vermont: 
12/31/2007: Net trust fund balance (thousands of dollars): $177,613; 
12/31/2007: High-cost multiple: 0.72; 
12/31/2009: Net trust fund balance (thousands of dollars): $23,038; 
12/31/2009: High-cost multiple: 0.10. 

Washington: 
12/31/2007: Net trust fund balance (thousands of dollars): $3,794,156; 
12/31/2007: High-cost multiple: 0.98; 
12/31/2009: Net trust fund balance (thousands of dollars): $2,596,130; 
12/31/2009: High-cost multiple: 0.67. 

Wisconsin: 
12/31/2007: Net trust fund balance (thousands of dollars): $592,228; 
12/31/2007: High-cost multiple: 0.23; 
12/31/2009: Net trust fund balance (thousands of dollars): -$895,714; 
12/31/2009: High-cost multiple: N.A. 

West Virginia: 
12/31/2007: Net trust fund balance (thousands of dollars): $244,786; 
12/31/2007: High-cost multiple: 0.35; 
12/31/2009: Net trust fund balance (thousands of dollars): $123,859; 
12/31/2009: High-cost multiple: 0.17. 

Wyoming: 
12/31/2007: Net trust fund balance (thousands of dollars): $243,500; 
12/31/2007: High-cost multiple: 0.95; 
12/31/2009: Net trust fund balance (thousands of dollars): $155,048; 
12/31/2009: High-cost multiple: 0.60. 

Total: 
12/31/2007: Net trust fund balance (thousands of dollars): $38,168,149; 
12/31/2007: High-cost multiple: 0.36; 
12/31/2009: Net trust fund balance (thousands of dollars): 
-$15,409,890; 
12/31/2009: High-cost multiple: N.A. 

Source: Employment and Training Administration, U.S. Department of 
Labor. 

Note: Net trust fund balances are gross reserves less federal UI 
loans. 'N.A.' for high-cost multiple indicates a negative net trust 
fund balance. 

[End of table] 

Recent Recession Has Sharply Increased Number and Duration of UI 
Claims: 

The recent recession has resulted in very large numbers of workers 
receiving benefits for very long periods of time. The insured 
unemployment rate (IUR), which provides a measure of the percentage of 
the UI-covered labor force receiving benefits, reached 4.6 percent in 
the second quarter of 2009, higher than any annual level since 
reaching 4.7 percent for 1982.[Footnote 30] Twenty-three states 
recorded quarterly rates of 4.7 percent or higher during the second 
quarter of 2009. Unemployed workers have also experienced an 
historically long duration of benefit recipiency during this 
recession. Nationally, the average duration among those workers 
receiving benefits during the fourth quarter of 2009 was 18.8 weeks, 
higher than any annual average in the program's history.[Footnote 31] 
For 2009, total weeks compensated for regular UI claimants totaled 266 
million, also higher than that of any year in the program's history. 

High IURs and long durations have increased demands on the UI program. 
Total UI regular and extended benefits paid out in 2009 equaled $85.8 
billion, compared to $40.7 billion for all of 2008. The highest 12- 
month benefit payout rate, 2.2 percent of total wages, occurred in 
1975, but 2009 could approach that level of benefit payments.[Footnote 
32] Another indicator of the surge in benefit payments is that 40 
states paid extended benefits in the fourth quarter of 2009; these 
benefits totaled $6.3 billion in 2009, higher in inflation-adjusted 
terms than in any year since 1976. 

Although UI Tax Rates Will Rise Sharply in Many States, Labor Projects 
Negative Balances for Several Years: 

UI taxes in most states will increase in 2010, and likely beyond, 
because of automatic triggers in most states that react to declining 
UI trust fund reserves. Twenty-five states have raised their UI 
taxable wage base in 2010, including 9 that do not index the base to 
average wages. A 2009 state survey found that 35 states would increase 
their UI taxes on employers in 2010, with increases ranging from 2.5 
percent in Kentucky to 600 percent in Hawaii, and a median projected 
contribution level increase of 27.5 percent.[Footnote 33] The survey 
also found that 10 other states indicated that they could not increase 
their tax schedules any further under current state law, and would 
need to have their state legislatures revise current law to do so. 

Despite projected tax increases in many states, UI reserves are 
expected to decline sharply in the near future. While the economy 
appears to be recovering from the recession, DOL has projected that 
national unemployment rates will remain well above 9 percent in 2010, 
and according to the CBO, many professional forecasters predict that 
the pace of the recovery will be slow and that unemployment will 
remain high for several years. DOL estimates that state UI regular 
benefit outlays will be at $74.9 billion in fiscal year 2009 and $93.3 
billion in fiscal year 2010, which is almost triple the amount of UI 
benefits paid out in fiscal year 2007. DOL has projected that trust 
fund account balances, net of loans, will fall to -$88.4 billion at 
the end of fiscal year 2012 before starting to grow again, with net 
balances not becoming positive until well beyond fiscal year 2014. DOL 
anticipates that the number of outstanding UI loans that states have 
from the federal government will increase until 2012, when they could 
total $90 billion. Employers in states that cannot make their loan 
payments within the required 2-year period could lose some of their 
FUTA tax credit and pay increasing tax rates each year until the loan 
is repaid. For example, a 2009 UI solvency study by the state of New 
Hampshire projected that if the state's employers lose FUTA tax 
credits in 2012, they will owe an additional $153 million in taxes 
through 2016, plus an additional $71 million in 2017. During past 
recessions in the 1980s and 2000s, employers in approximately 20 
states did lose FUTA tax credits due to states' inability to repay 
state loans on time, and the federal government ultimately kept the 
escalating FUTA credit reductions in place until the states repaid 
their debts.[Footnote 34] 

Long-standing State UI Policies and Practices Have Led to Trust Fund 
Vulnerability: 

While the recent recession has severely drained UI reserves, the 
current situation reflects long-term financial decline. The mid-1970s 
marked a noticeable shift in trust fund financial conditions, starting 
with the recession that lasted from 1973 to 1975. Prior to that time, 
from 1938 to 1973, state UI trust funds held average year-end 
reserves, net of loans, equal to 5.1 percent of wages, and never 
dropped below 2 percent. From 1974 to 2008, that average fell to 1.0 
percent of wages and has never been as high as 2 percent. Therefore, 
states have had less of a financial buffer in their trust funds to 
withstand a high-cost benefit period. Prior to the recent recession, 
the aggregate HCM nationwide was only 0.35, corresponding to enough 
reserves for about 4 months of benefits at a high-cost rate; therefore 
even a much milder recession was likely to have caused widespread 
trust fund insolvency. Further, table 3 shows a large difference in 
the average state HCM prior to the current recession for states that 
have needed to borrow to pay benefits (average state HCM of 0.32) and 
those that have not (0.87), with similar pre-recession funding 
differences for the three previous recessions.[Footnote 35] This 
suggests that pre-recession funding levels have played a key role in 
helping states avoid loans during the recent recession and current 
recovery (although the average peak IUR in borrowing states has also 
exceeded that of non-borrowing states). Further, average U.S. pre-
recession funding levels were lower prior to the recent recession than 
for the previous three. Perhaps most surprising is that despite a 10-
year economic expansion prior to the 2001 recession, states built up 
trust funds to an average HCM of only 0.64, enough to pay benefits at 
a high-cost rate for about 8 months. 

Table 3: Key Trust Fund and Employment Statistics for Last Four U.S. 
Recessions: 

Date of recession: States taking out federal loans (number of states); 
2007: Pre-recession HCM: 0.34 (34); 
2007: Peak IUR: 4.9; 
Early 1980s: Pre-recession HCM: 0.28 (25); 
Early 1980s: Peak IUR: 5.2; 
1990: Pre-recession HCM: 0.34 (5); 
1990: Peak IUR: 3.7; 
2001: Pre-recession HCM: 0.30 (5); 
2001: Peak IUR: 2.7. 

Date of recession: Non-borrowing states; 
2007: Pre-recession HCM: 0.93; 
2007: Peak IUR: 4.2; 
Early 1980s: Pre-recession HCM: 0.96; 
Early 1980s: Peak IUR: 4.6; 
1990: Pre-recession HCM: 1.01; 
1990: Peak IUR: 3.1; 
2001: Pre-recession HCM: 0.91; 
2001: Peak IUR: 2.7. 

Date of recession: All U.S.; 
2007: Pre-recession HCM: 0.35; 
2007: Peak IUR: 4.6; 
Early 1980s: Pre-recession HCM: 0.41; 
Early 1980s: Peak IUR: 4.7; 
1990: Pre-recession HCM: 0.86; 
1990: Peak IUR: 3.2; 
2001: Pre-recession HCM: 0.64; 
2001: Peak IUR: 2.8. 

Source: GAO calculations, based on Unemployment Insurance Financial 
Data Handbook, ETA. 

Note: HCM is average state high cost multiple just prior to recession 
and IUR is average peak state insured unemployment rate following 
onset of recession (annual data for 1980s and 1990, quarterly for 2001 
and 2007). All U.S. is not an average of state measures. 

[End of table] 

UI Taxation Levels Have Declined Since the 1970s: 

Declining UI trust fund reserves in recent decades suggest that states 
have reduced UI tax contribution levels, increased or broadened 
benefits, or both, although most of the evidence suggests that many 
states have reduced tax levels gradually. Although there are 
fluctuations, UI tax contributions as a percentage of UI-covered wages 
have trended downward in recent decades, from an annual national 
average of 1.15 percent (1979 to 1988) to 0.79 percent (1989 to 1998) 
and in the past decade to 0.65 percent (1999 to 2008) (see figure 2). 
Contribution rates exceeded 1.0 percent of total wages for each year 
from 1979 to 1987 but have fallen below that level each year since. 
Over the same 30-year period, average annual benefits slightly 
exceeded contributions, with benefits averaging 0.90 percent of annual 
wages and contributions averaging 0.86 percent of wages. Year-end net 
trust fund reserves over the period fell from 0.91 percent of wages in 
1979 to 0.60 percent in 2008, with further declines in 2009. While 
there were expected fluctuations around the business cycles, with 
benefits surging during recessions and contributions rising once the 
economy strengthens, there has been a general downward trend in 
contribution rates over the period. 

Figure 2: UI Contributions, Benefits, and Net Reserves, 1979-2008: 

[Refer to PDF for image: multiple line graph] 

Percentage of UI-covered wages: 

Year: 1979; 
Contributions: 1.28%; 
Benefits: 0.91%; 
Net reserves: 0.91%. 

Year: 1980; 
Contributions: 1.11%; 
Benefits: 1.34%; 
Net reserves: 0.64%. 

Year: 1981; 
Contributions: 1.03%; 
Benefits: 1.17%; 
Net reserves: 0.51%. 

Year: 1982; 
Contributions: 1.04%; 
Benefits: 1.76%; 
Net reserves: 0%. 

Year: 1983; 
Contributions: 1.18%; 
Benefits: 1.44%; 
Net reserves: 0%. 

Year: 1984; 
Contributions: 1.37%; 
Benefits: 0.92%; 
Net reserves: 0.16%. 

Year: 1985; 
Contributions: 1.31%; 
Benefits: 0.96%; 
Net reserves: 0.68%. 

Year: 1986; 
Contributions: 1.16%; 
Benefits: 0.99%; 
Net reserves: 0.99%. 

Year: 1987; 
Contributions: 1.05%; 
Benefits: 0.81%; 
Net reserves: 1.38%. 

Year: 1988; 
Contributions: 0.97%; 
Benefits: 0.69%; 
Net reserves: 1.71%. 

Year: 1989; 
Contributions: 0.86%; 
Benefits: 0.71%; 
Net reserves: 1.92%. 

Year: 1990; 
Contributions: 0.75%; 
Benefits: 0.86%; 
Net reserves: 1.88%. 

Year: 1991; 
Contributions: 0.71%; 
Benefits: 1.2%; 
Net reserves: 1.49%. 

Year: 1992; 
Contributions: 0.78%; 
Benefits: 1.1%; 
Net reserves: 1.19%. 

Year: 1993; 
Contributions: 0.88%; 
Benefits: 0.92%; 
Net reserves: 1.25%. 

Year: 1994; 
Contributions: 0.92%; 
Benefits: 0.86%; 
Net reserves: 1.32%. 

Year: 1995v
Contributions: 0.87%; 
Benefits: 0.8%; 
Net reserves: 1.4%. 

Year: 1996; 
Contributions: 0.8%; 
Benefits: 0.76%; 
Net reserves: 1.43%. 

Year: 1997; 
Contributions: 0.73%; 
Benefits: 0.64%; 
Net reserves: 1.5%. 

Year: 1998; 
Contributions: 0.62%; 
Benefits: 0.58%; 
Net reserves: 1.51%. 

Year: 1999v
Contributions: 0.56%; 
Benefits: 0.57%; 
Net reserves: 1.47%. 

Year: 2000; 
Contributions: 0.54%; 
Benefits: 0.52%; 
Net reserves: 1.46%. 

Year: 2001; 
Contributions: 0.52%; 
Benefits: 0.81%; 
Net reserves: 1.24%. 

Year: 2002; 
Contributions: 0.53%; 
Benefits: 1.08%; 
Net reserves: 0.96%. 

Year: 2003; 
Contributions: 0.67%; 
Benefits: 1.03%; 
Net reserves: 0.64%. 

Year: 2004; 
Contributions: 0.78%; 
Benefits: 0.81%; 
Net reserves: 0.59%. 

Year: 2005; 
Contributions: 0.82%; 
Benefits: 0.69%; 
Net reserves: 0.67%. 

Year: 2006; 
Contributions: 0.76%; 
Benefits: 0.62%; 
Net reserves: 0.78%. 

Year: 2007; 
Contributions: 0.67%; 
Benefits: 0.64%; 
Net reserves: 0.8%. 

Year: 2008; 
Contributions: 0.62%; 
Benefits: 0.85%; 
Net reserves: 0.6%. 

Sources: Unemployment Insurance Financial Data Handbook; Employment 
and Training Administration, Department of Labor. 

Note: For more detailed data, see table 8 in appendix IV. 

[End of figure] 

* Eroding Taxable Wage Bases: 

One key reason for falling UI contribution rates is that most states 
do not index their taxable wage bases, the annual earnings per 
employee on which employers pay UI taxes, to average wages. As of 
2010, only 17 of the 53 state trust funds have taxable wage bases that 
are indexed to average wages (see figure 3).[Footnote 36] In contrast, 
other states change their wage bases sporadically or very 
infrequently. Twenty-six have UI taxable wage bases of $10,000 per 
worker per year or less, including 6 that have set theirs at the FUTA 
wage base level of $7,000 since it last changed in 1983. As a result, 
employers have paid taxes on a gradually shrinking portion of total 
wages as wages have risen since then. The ratio of UI-taxable to total 
wages measured 47.2 percent in 1979 but has declined steadily since 
then measuring 26.8 percent in 2008. States not indexing their wage 
bases account for most of this decline-the ratio in these states fell 
from 0.50 to 0.25 over this period while indexing states' average 
ratio dropped only from 0.59 to 0.53 (see figure 4). 

Figure 3: UI Taxable Wage Bases, 2010: 

[Refer to PDF for image: U.S. map] 

Taxable wage base: $7,000 (minimum taxable-wage base): 
Arizona: 
California: 
Florida: 
Mississippi: 
Puerto Rico: 
South Carolina. 

Taxable wage base: $7,700 to $18,000: 
Alabama: 
Arkansas: 
Colorado: 
Connecticut: 
Delaware: 
District of Columbia: 
Georgia: 
Illinois: 
Indiana: 
Kansas: 
Kentucky: 
Louisiana: 
Maine: 
Maryland: 
Massachusetts: 
Michigan: 
Missouri: 
Nebraska: 
New Hampshire: 
New York: 
Ohio: 
Oklahoma: 
Pennsylvania: 
South Dakota: 
Tennessee: 
Texas: 
Vermont: 
Virginia: 
West Virginia: 
Wisconsin. 

Taxable wage base: $19,000 or more: 
Alaska: 
Hawaii: 
Idaho: 
Iowa: 
Minnesota: 
Montana: 
Nevada: 
New Jersey: 
New Mexico: 
North Carolina: 
North Dakota: 
Oregon: 
Rhode Island: 
Utah: 
Virgin Islands: 
Washington: 
Wyoming. 

Source: Employment and Training Administration, Department of Labor. 

Note: Each state's taxable wage base is the annual earnings per 
employee on which employers pay UI taxes. For other major 
characteristics of state UI programs, see appendix III. 

[End of figure] 

Figure 4: Comparison of UI-taxable/total Wage Ratio, States with 
Indexed Taxable Wage Bases vs. Other States, 1979-2008: 

[Refer to PDF for image: multiple line graph] 

UI-covered wage ratio: 

Year: 1979; 
States with an indexed wage base: 0.59; 
States without an indexed wage base: 0.50; 
U.S. average: 0.47. 

Year: 1980; 
States with an indexed wage base: 0.57; 
States without an indexed wage base: 0.47; 
U.S. average: 0.45. 

Year: 1981; 
States with an indexed wage base: 0.568; 
States without an indexed wage base: 0.444; 
U.S. average: 0.42. 

Year: 1982; 
States with an indexed wage base: 0.57; 
States without an indexed wage base: 0.43; 
U.S. average: 0.41. 

Year: 1983; 
States with an indexed wage base: 0.58; 
States without an indexed wage base: 0.46; 
U.S. average: 0.43. 

Year: 1984; 
States with an indexed wage base: 0.58; 
States without an indexed wage base: 0.45; 
U.S. average: 0.43. 

Year: 1985; 
States with an indexed wage base: 0.58; 
States without an indexed wage base: 0.44; 
U.S. average: 0.42. 

Year: 1986; 
States with an indexed wage base: 0.57; 
States without an indexed wage base: 0.43; 
U.S. average: 0.41. 

Year: 1987; 
States with an indexed wage base: 0.57; 
States without an indexed wage base: 0.42; 
U.S. average: 0.40. 

Year: 1988; 
States with an indexed wage base: 0.55; 
States without an indexed wage base: 0.40; 
U.S. average: 0.39. 

Year: 1989; 
States with an indexed wage base: 0.56; 
States without an indexed wage base: 0.40; 
U.S. average: 0.39. 

Year: 1990; 
States with an indexed wage base: 0.56; 
States without an indexed wage base: 0.38; 
U.S. average: 0.38. 

Year: 1991; 
States with an indexed wage base: 0.54; 
States without an indexed wage base: 0.37; 
U.S. average: 0.37. 

Year: 1992; 
States with an indexed wage base: 0.56; 
States without an indexed wage base: 0.36; 
U.S. average: 0.36. 

Year: 1993; 
States with an indexed wage base: 0.56; 
States without an indexed wage base: 0.36; 
U.S. average: 0.36. 

Year: 1994; 
States with an indexed wage base: 0.57; 
States without an indexed wage base: 0.36; 
U.S. average: 0.36. 

Year: 1995; 
States with an indexed wage base: 0.57; 
States without an indexed wage base: 0.35; 
U.S. average: 0.35. 

Year: 1996; 
States with an indexed wage base: 0.56; 
States without an indexed wage base: 0.34; 
U.S. average: 0.34. 

Year: 1997; 
States with an indexed wage base: 0.56; 
States without an indexed wage base: 0.33; 
U.S. average: 0.33. 

Year: 1998; 
States with an indexed wage base: 0.55; 
States without an indexed wage base: 0.32; 
U.S. average: 0.32. 

Year: 1999; 
States with an indexed wage base: 0.55; 
States without an indexed wage base: 0.32; 
U.S. average: 0.32. 

Year: 2000; 
States with an indexed wage base: 0.55; 
States without an indexed wage base: 0.31; 
U.S. average: 0.31. 

Year: 2001; 
States with an indexed wage base: 0.55; 
States without an indexed wage base: 0.30; 
U.S. average: 0.30. 

Year: 2002; 
States with an indexed wage base: 0.56; 
States without an indexed wage base: 0.29; 
U.S. average: 0.3. 

Year: 2003; 
States with an indexed wage base: 0.56; 
States without an indexed wage base: 0.29; 
U.S. average: 0.29. 

Year: 2004; 
States with an indexed wage base: 0.55; 
States without an indexed wage base: 0.27; 
U.S. average: 0.29. 

Year: 2005; 
States with an indexed wage base: 0.55; 
States without an indexed wage base: 0.27; 
U.S. average: 0.29. 

Year: 2006; 
States with an indexed wage base: 0.55; 
States without an indexed wage base: 0.26; 
U.S. average: 0.28. 

Year: 2007; 
States with an indexed wage base: 0.54; 
States without an indexed wage base: 0.26; 
U.S. average: 0.27. 

Year: 2008; 
States with an indexed wage base: 0.53; 
States without an indexed wage base: 0.25; 
U.S. average: 0.27. 

Source: GAO calculations based on data from Unemployment Insurance 
Financial Data Handbook; Employment and Training Administration, 
Department of Labor. 

Note: The UI-taxable/total wage ratio divides the portion of total 
wages among employees in UI-covered employment each state subjects to 
UI taxation by the total wages earned by these employees. Some states 
have indexed their UI taxable wage bases for only some years during 
1979-2008. We categorize Virgin Islands as indexing from 2004-8; Rhode 
Island from 1980-1998; Wyoming from 1984-2008; Oklahoma from 1986-
2008; and North Carolina from 1984-2008. States that indexed their 
wage bases for the entire period are Alaska, Hawaii, Idaho, Iowa, 
Minnesota, Montana, Nevada, New Jersey, New Mexico, North Dakota, 
Oregon, Utah, and Washington. For more detailed data, see table 9 in 
appendix IV. 

[End of figure] 

A comparison of financial measures for states that index their UI 
taxable wage bases and those that do not reveals that indexing states 
have maintained higher annual average reserve ratios and had many 
fewer instances of trust fund insolvency, even accounting for the 
smaller number of states that index (see table 4). In indexing states, 
employers pay higher contribution rates--paying, on average, lower tax 
rates on higher tax bases. Benefits in indexing states, as a 
percentage of annual wages, also exceed those in non-indexing states. 
Finally, states currently indexing their taxable wage bases have 
higher trust fund reserve ratios (as of third quarter 2009), although 
6 of 17 indexing states currently have outstanding loans (as opposed 
to those in 25 of the 36 non-indexing states). 

Table 4: UI Financial Statistics, States with Indexed Taxable Wage 
Bases vs. Other States, 1979-2008: 

Indexing states (17, as of 2010)[A]; 
Avg. taxable wage base ($/worker/year): $16,112; 
2010 Avg. taxable wage base ($/worker/year): $27, 218; 
Taxable wages (% of UI-covered wages): 56.1; 
Net reserves (% of UI-covered wages): 2.12; 
Instances of states receiving federal UI loans[B]: 11; 
UI contributions (% of UI-covered wages): 1.11; 
Tax rate (% of taxable wage base): 1.96; 
Benefits (% of UI-covered wages): 1.09; 
Trust fund balance as of 4th quarter 2009 (% of UI-covered wages): 
1.05. 

Non-indexing states (36); 
Avg. taxable wage base ($/worker/year): $8,016; 
2010 Avg. taxable wage base ($/worker/year): $9,742; 
Taxable wages (% of UI-covered wages): 36.1; 
Net reserves (% of UI-covered wages): 1.44; 
Instances of states receiving federal UI loans[B]: 55; 
UI contributions (% of UI-covered wages): 0.84; 
Tax rate (% of taxable wage base): 2.30; 
Benefits (% of UI-covered wages): 0.87; 
Trust fund balance as of 4th quarter 2009 (% of UI-covered wages): 
0.37. 

Source: GAO calculations using data from Unemployment Insurance 
Financial Data Handbook, ETA. 

Note: Figures are annual averages for 1979-2008 except as noted. 

[A] See note in figure 4 about states that have indexed their taxable 
wage base for part of this sample period. 

[B] Counts the number of states that had an end-of-year UI loan 
balance from the federal government during or following each of the 
four recessions occurring from 1979 to 2008, with consecutive multi-
year balances during one recession or recovery counting as one event. 

[End of table] 

* Low State UI Tax Rates: 

While taxable wage bases have eroded in most states over the last 30 
years, the tax rates employers pay on these bases have not offset this 
decline, according to analysis by the Urban Institute. Table 5 
illustrates how minimum tax rates have generally trended downward, 
while maximums have moved up during the last 30 years. From 1978 to 
2008, average minimum tax rates levied on employers by states dropped 
from 1.14 percent to 0.37 percent of taxable wages. State minimum 
rates generally moved downward, with the number of states with a 
minimum rate of zero rose from 3 to 9. The average maximum rate 
increased from 4.44 percent of taxable wages in 1978 to 7.06 percent 
in 2008, but most of this jump occurred following a 1982 statutory 
change raising the state maximum rate required to qualify for the FUTA 
tax credit from at least 2.7 percent to at least 5.4 percent of 
taxable wages - since 1988, average maximum tax rates have remained 
near 7.0 percent while average minimum rates have fallen by half. 
[Footnote 37] Maximum statutory tax rates in 2009 ranged greatly 
across states, from 5.4 percent of taxable wages per employee in 16 
states to 13.2 percent in Pennsylvania.[Footnote 38] Overall, UI 
statutory tax rates applied to wage bases averaged 2.7 percent of 
taxable wages from 1979 to 1988, then 2.2 percent from 1989 to 1998 
and again from 1999 to 2008. 

Table 5: Distribution of Minimum and Maximum Statutory UI Tax Rates by 
State, 1978 to 2008: 

Year: 1978; 
Number of states with minimum tax rates of: 0: 3; 
Number of states with minimum tax rates of: 0.01 to 0.29%: 9; 
Number of states with minimum tax rates of: 0.3 to 0.69%: 11; 
Number of states with minimum tax rates of: 0.7 to 1.09%: 4; 
Number of states with minimum tax rates of: 1.1 to 1.59%: 10; 
Number of states with minimum tax rates of: 1.6 to 2.09%: 2; 
Number of states with minimum tax rates of: 2.1 to 2.59%: 3; 
Number of states with minimum tax rates of: 2.6% and above: 9; 
Number of states with minimum tax rates of: Average minimum rate: 1.14. 

Year: 1988; 
Number of states with minimum tax rates of: 0: 4; 
Number of states with minimum tax rates of: 0.01 to 0.29%: 11; 
Number of states with minimum tax rates of: 0.3 to 0.69%: 14; 
Number of states with minimum tax rates of: 0.7 to 1.09%: 7; 
Number of states with minimum tax rates of: 1.1 to 1.59%: 7; 
Number of states with minimum tax rates of: 1.6 to 2.09%: 6; 
Number of states with minimum tax rates of: 2.1 to 2.59%: 2; 
Number of states with minimum tax rates of: 2.6% and above: 0; 
Number of states with minimum tax rates of: Average minimum rate: 0.74. 

Year: 1998; 
Number of states with minimum tax rates of: 0: 8; 
Number of states with minimum tax rates of: 0.01 to 0.29%: 19; 
Number of states with minimum tax rates of: 0.3 to 0.69%: 13; 
Number of states with minimum tax rates of: 0.7 to 1.09%: 2; 
Number of states with minimum tax rates of: 1.1 to 1.59%: 4; 
Number of states with minimum tax rates of: 1.6 to 2.09%: 4; 
Number of states with minimum tax rates of: 2.1 to 2.59%: 1; 
Number of states with minimum tax rates of: 2.6% and above: 0; 
Number of states with minimum tax rates of: Average minimum rate: 0.50. 

Year: 2008; 
Number of states with minimum tax rates of: 0: 9; 
Number of states with minimum tax rates of: 0.01 to 0.29%: 19; 
Number of states with minimum tax rates of: 0.3 to 0.69%: 14; 
Number of states with minimum tax rates of: 0.7 to 1.09%: 3; 
Number of states with minimum tax rates of: 1.1 to 1.59%: 5; 
Number of states with minimum tax rates of: 1.6 to 2.09%: 1; 
Number of states with minimum tax rates of: 2.1 to 2.59%: 0; 
Number of states with minimum tax rates of: 2.6% and above: 0; 
Number of states with minimum tax rates of: Average minimum rate: 0.37. 

Year: 1978; 
Number of states with minimum tax rates of: 2.7%: 4; 
Number of states with minimum tax rates of: 2.71 to 4.0%: 20; 
Number of states with minimum tax rates of: 4.01 to 5.39%: 16; 
Number of states with minimum tax rates of: 5.4%: 1; 
Number of states with minimum tax rates of: 5.41 to 6.49%: 6; 
Number of states with minimum tax rates of: 6.5 to 7.49%: 2; 
Number of states with minimum tax rates of: 7.5 to 9.09%: 2; 
Number of states with minimum tax rates of: 9.1% and above: 0; 
Number of states with minimum tax rates of: Average maximum rate: 4.44. 

Year: 1988; 
Number of states with minimum tax rates of: 2.7%: 0; 
Number of states with minimum tax rates of: 2.71 to 4.0%: 0; 
Number of states with minimum tax rates of: 4.01 to 5.39%: 0; 
Number of states with minimum tax rates of: 5.4%: 17; 
Number of states with minimum tax rates of: 5.41 to 6.49%: 9; 
Number of states with minimum tax rates of: 6.5 to 7.49%: 5; 
Number of states with minimum tax rates of: 7.5 to 9.09%: 11; 
Number of states with minimum tax rates of: 9.1% and above: 9; 
Number of states with minimum tax rates of: Average maximum rate: 6.99. 

Year: 1998; 
Number of states with minimum tax rates of: 2.7%: 0; 
Number of states with minimum tax rates of: 2.71 to 4.0%: 0; 
Number of states with minimum tax rates of: 4.01 to 5.39%: 0; 
Number of states with minimum tax rates of: 5.4%: 16; 
Number of states with minimum tax rates of: 5.41 to 6.49%: 10; 
Number of states with minimum tax rates of: 6.5 to 7.49%: 8; 
Number of states with minimum tax rates of: 7.5 to 9.09%: 12; 
Number of states with minimum tax rates of: 9.1% and above: 5; 
Number of states with minimum tax rates of: Average maximum rate: 6.82. 

Year: 2008; 
Number of states with minimum tax rates of: 2.7%: 0; 
Number of states with minimum tax rates of: 2.71 to 4.0%: 0; 
Number of states with minimum tax rates of: 4.01 to 5.39%: 0; 
Number of states with minimum tax rates of: 5.4%: 17; 
Number of states with minimum tax rates of: 5.41 to 6.49%: 10; 
Number of states with minimum tax rates of: 6.5 to 7.49%: 5; 
Number of states with minimum tax rates of: 7.5 to 9.09%: 8; 
Number of states with minimum tax rates of: 9.1% and above: 11; 
Number of states with minimum tax rates of: Average maximum rate: 7.06. 

Source: Urban Institute analysis of ETA "Significant Provisions of 
State UI Laws," and "Comparison of State Unemployment Insurance Laws," 
various issues. State averages are simple averages of 51 programs that 
weight each state equally regardless of size. Data exclude Puerto Rico 
and the Virgin Islands. 

[End of table] 

Further, average tax rates on total wages in many states have fallen 
below what DOL considers to be adequate to cover the costs of 
benefits.[Footnote 39] A 2009 DOL report on state tax systems reported 
that all but six states levied average tax rates below the rate 
adequate to cover benefits and maintain solvency.[Footnote 40] 
Similarly, only seven states met their adequate financing rates in 
2008; states were better at meeting their adequate financing rates in 
2006 and 2007.[Footnote 41] As of 2009, 20 of 43 states and 
territories that submitted information for a 2009 DOL report on state 
tax systems had trust funds with minimum tax rates that were less than 
$15 per employee per year, and 12 of these states had a minimum tax 
rate of zero. In 34 of these 43 states, over half of the employers 
paid UI tax rates of 0.5 percent or less of total wages, while 
nationally in the aggregate 67 percent of U.S. employers paid this low 
rate. In 30 states, as well as the United States overall, this low 
rate was applied to at least half of the total UI-eligible wages. The 
United States as a whole only had 3 percent of its employers paying 
taxes greater than 2 percent of total wages. 

Benefits Have Remained Fairly Flat in Recent Decades: 

By several measures UI benefits have remained relatively flat or 
declined in recent decades, suggesting that declining trust fund 
reserves cannot be explained by a significant change in benefits. 
Aggregate annual benefits nationwide averaged 1.10 percent of UI- 
covered wages from 1979 to 1988, then dropped 0.84 percent from 1989 
to 1998 and again to 0.76 percent from 1999 to 2008. Average weekly 
benefits paid as a percentage of average weekly wages have remained 
relatively flat from 1979 to 2008, fluctuating from approximately 33 
to 38 percent. Measured in terms of replacement rates, or the ratio of 
individual benefits received to prior wages, benefits to wages have 
also remained fairly flat from 1988 to 2007, ranging from 44 to 47 
percent. Moreover, as we found in 2007, the UI recipiency rate, which 
effectively measures the percentage of the unemployed who receive 
benefits, gradually declined from the 1950s through the 1980s and 
remains below the near-50 percent rate of the 1950s. In 1979, the 
ratio of the insured unemployment rate to the total unemployment rate 
measured 48 percent, compared to 43 percent in 2008.[Footnote 42] 
Further, low-wage and part-time workers continue to experience low 
rates of benefit receipt.[Footnote 43] For example, we found that low- 
wage workers were more than twice as likely to be unemployed, but 
about half as likely to receive UI benefits.[Footnote 44] We have also 
found that past declines in the percentage of unemployed who receive 
UI benefits are associated with declines in state UI trust fund 
financial conditions. For example, in 1993 we found that if the same 
proportion of unemployed workers had received comparable benefit 
payments during the 1990-91 recession as during the 1974-75 recession, 
about $20 billion more in unemployment benefits would have been 
available to stabilize the economy and maintain the incomes of the 
unemployed. In addition, we found that states with declining or 
insolvent trust funds were likely to make it more difficult for 
unemployed workers to qualify for benefits and to reduce the portion 
of wages of former workers replaced by unemployment benefits.[Footnote 
45] 

In addition to paying regular benefits, states are also typically 
responsible for funding a portion of benefits paid under the federal- 
state Extended Benefits program (EB). While states fund approximately 
half of the cost of EB, the aggregate cost of these benefits for the 
states represents a small portion of total benefits paid by the 
states. From 1979 to the third quarter of 2009, EB payments totaled 
$13.3 billion, approximately $4.8 billion of which the states paid 
for. These amounts represent 1.9 percent of total benefits paid, and 
0.7 percent of state benefits paid, and hence have had relatively 
little impact on state trust funds. Given the surge in EB in 2009, 
with over $4 billion in total through the third quarter, without the 
federal government funding 100 percent of most EB costs from February 
17, 2009, through April 5, 2010, under ARRA, as amended, the impact 
would have been much greater; it remains to be seen if EB becomes a 
significant burden on states later in 2010.[Footnote 46] 

States Annually Adjust Tax Rates Based on Trust Fund Levels: 

Currently, all states adjust UI tax rates yearly, based on an annual 
measurement of the size of the trust fund and calculation of employer 
experience rating. Generally, states raise UI tax rates as the trust 
fund diminishes in order to try to replenish the fund and lower them 
when the fund grows to a certain level. This practice has the 
advantage of providing automatic stabilization to UI funding. However, 
it creates two problems. First, annual adjustments might allow rates 
to remain inappropriately high or low for up to an entire year if 
economic conditions change sharply soon after the "fund trigger date" 
on which a state measures its trust fund. Some states told us that 
this occurred during the recent recession, which began in late 2007, 
and worsened in fall 2008 following the financial meltdown, right 
after some states had measured their trust funds. If states adjusted 
their tax rates more frequently, employers may have seen more gradual 
rate increases instead of the widespread sharp increases going into 
effect in 2010. Second, tying tax rates to trust fund conditions means 
that states are likely to raise taxes on employers when economic and 
labor market conditions are weak (coinciding with increased benefit 
payouts and low trust funds). Higher taxes during weak economic times 
may exacerbate labor market conditions (since higher UI taxes make it 
more expensive to hire workers) and economic recovery in general. 
Thus, the effects of state tax adjustments erode at least some of the 
stabilizing macroeconomic effects of paying UI benefits. 

Among Policy Options, Revenue-Related Reforms May Hold Key to 
Improving UI Trust Fund Solvency: 

Given the UI program's vision for economic stabilization through 
business cycles, it has been a policy goal for at least 3 decades to 
promote greater forward funding of the individual state funds. In 1980 
and 1994 national commissions issued many recommendations for 
increasing and stabilizing program funding. These commissions, as well 
as other studies, have encouraged states to build up reserves and 
reduce the dependence on borrowing during difficult economic times. 
Based on our current findings, table 6 lists some policy options for 
improving long-term trust fund financing with some of their advantages 
and disadvantages. 

Table 6: Policy Options for Improving UI Funding: 

Policy: Raise and index FUTA taxable wage base; 
Who could implement: Congress; 
Advantages: Would reverse years of erosion of UI tax base and maintain 
wage base as a consistent proportion of income. Would cause states to 
raise their taxable wage bases to qualify for FUTA credit. Could allow 
federal government and states to reduce statutory tax rates for given 
UI funding goals; 
Disadvantages: Higher UI taxes could discourage hiring. Federal 
taxable wage base represents different tax burdens to different states. 
Resistance of states to increasing burden on employers to pay more to 
federal trust funds. 

Policy: Reduce number of employers paying very low UI tax rates; 
Who could implement: States[A]; 
Advantages: Would increase UI contributions. Would better distribute 
costs of social insurance; 
Disadvantages: Fairness--UI taxes may not reflect costs attributable 
to employers. Would reduced incentive for employers to avoid layoffs. 

Policy: Reduce large tax subsidies across employers and industries; 
Who could implement: States[A]; 
Advantages: Distribution of UI taxes based on costs created by 
employer layoffs. Stronger incentives for employers to avoid layoffs; 
Disadvantages: Increased rates may encourage employers with high tax 
rates to try to circumvent tax. 

Policy: Adjust state tax rates more frequently than annually and raise 
solvency targets before implementing lower tax rates; 
Who could implement: States[A]; 
Advantages: Tax rates could adjust before trust fund becomes severely 
depleted. More funds raised during strong, not weak, economic 
conditions; 
Disadvantages: Higher administrative costs. Less ability of employers 
to anticipate tax rates. Resistance from employers to paying 
relatively high UI taxes when trust funds were flush. 

Policy: Set additional conditions on interest-free loans; 
Who could implement: Department of Labor[B]; 
Advantages: Strengthen incentives for states to avoid loans with more 
robust forward funding; 
Disadvantages: Increased reliance on higher tax rates during difficult 
economic times. Estimated small impact. State objections to paying 
more for funds their taxes provide. 

Policy: Offer increased interest credits to state trust funds funded 
above a certain level; 
Who could implement: Congress; 
Advantages: Incentive for states to save more in trust funds; 
Disadvantages: States with lower funding balances may receive less in 
interest. 

Source: GAO analysis based on findings. 

[A] While only states could implement these policy changes, Congress 
could include these as requirements for employers in a state to 
qualify for the FUTA tax credit. 

[B] Labor has published proposed rules on interest-free loan 
conditions that have yet to be finalized. See footnotes 20 and 51 for 
additional information on this proposed rule. 

[End of table] 

* Raise and index FUTA taxable wage base: 

The FUTA taxable wage base has remained fixed at $7,000 per worker per 
year since 1983.[Footnote 47] Six state trust funds have also kept 
their taxable wage base at that level since then, while an additional 
20 set theirs between $7,000 and $10,000. From 1983 to 2008, the 
average weekly wage in UI-covered employment rose from $336 to $869 
per worker, a rise of 159 percent. By keeping the wage base fixed 
instead of rising with wages, the percentage of wages subject to UI 
taxation has fallen from 43.1 percent in 1983 to 26.8 percent in 2008. 
This means that a steadily shrinking portion of the wage distribution 
is responsible for raising UI revenues. This also suggests that any 
impact UI taxes have on reducing wages has been borne increasingly by 
lower-income workers. Raising the FUTA base to make up for some of the 
relative erosion in the UI revenue base and indexing it to future wage 
growth would ensure that a more constant share of total income 
supports the UI program. If the FUTA taxable wage base had risen 
roughly with the changes in wages since 1983, the 2008 taxable wage 
would be approximately $18,100--higher than the 2010 tax bases for all 
but 17 state trust funds.[Footnote 48] Since employers in states with 
tax bases which are less than the FUTA tax base would not be eligible 
for the full tax credit, states would almost certainly raise and index 
theirs to the new, higher FUTA tax base. The one-time increase and 
indexing of the taxable wage base would mean that state UI tax revenue 
would more likely represent a consistent share of total wages, as well 
as spread the effective tax incidence of UI taxes across more of the 
wage distribution. It would also allow states to set lower tax rates 
in order to raise a given amount of revenue, which is generally a more 
efficient way to tax than to set higher tax rates on a narrower tax 
base. 

Most state UI program officials we interviewed said they would 
welcome, or at least accept, a higher FUTA taxable wage base, some 
emphasizing that some states have not been able to raise taxable wage 
bases on their own. Other representatives said they would object to 
higher federal UI taxes, some citing instances when the federal 
government raised the statutory ceiling that triggers a Reed Act 
distribution, thus postponing the payment of money to state trust 
funds. Higher UI taxes, by making employment somewhat more expensive, 
could discourage some employers from hiring; however, the federal 
government could lower the effective 0.8 percent tax rate states have 
paid since 1985, which would reduce the impact of raising and indexing 
the FUTA tax base. 

* Reform UI tax rates structure: 

Another set of policy options would involve adjusting the UI tax rates 
employers pay. For example, states could act to (1) reduce the number 
of employers paying very low UI tax rates; (2) reduce large subsidies 
among employers and industries that pay less in UI taxes than benefits 
paid to their former workers; (3) adjust tax rates more frequently; 
and (4) set taxes to raise more funds during strong economic times. 
The first option would widen the effective revenue base for the 
program by getting contributions from more employers and allow the 
state to reduce tax rates for the higher levels of the tax schedule. 
There are distinct arguments in favor of, and against, setting minimum 
tax rates for all employers, and experience rating in general. 
Assigning higher tax rates to employers who lay more workers off 
distributes program costs in an arguably fair way and creates an 
incentive for employers to retain workers during difficult economic 
times. On the other hand, all employers, even those without a history 
of layoffs, face uncertainty about the future UI claims of their 
employees, an argument for every employer paying to cover this social 
insurance. 

As a second option, states could adjust experience ratings to reduce 
significant subsidies for some employers and industries. GAO reported 
in 2006 that industries with more seasonal layoffs, such as 
construction and agriculture, tend to pay less in UI contributions 
than their workers receive in benefits.[Footnote 49] Such experience 
rating reform could raise additional revenues from high-layoff 
employers whose tax rates hit tax rate maximums, better distribute the 
UI tax burden to those employers who create higher benefit costs 
through layoffs, and reduce benefit costs to the extent that higher 
tax rates discourage these employers from laying workers off in the 
first place. On the other hand, raising the rates charged to employers 
with the highest experience rating might create strong incentives for 
firms to circumvent paying UI taxes.[Footnote 50] 

A third option would encourage states to adjust UI tax rates more 
frequently if trust fund conditions change significantly and to raise 
more revenues when economic conditions are stronger. Annual 
adjustments to tax rates can lead to sharp increases when labor 
markets are weak. More frequent, even twice-yearly, measurement of 
trust fund conditions and tax rate adjustments could allow employers 
to absorb changes in tax burden more gradually. However, more frequent 
tax adjustments could create more administrative costs to implement, 
and employers may not like the increased uncertainty caused by more 
frequent tax adjustments. In order to build up more of a funding 
cushion when economic conditions are strong rather than when they are 
weak, states could consider setting higher trust fund targets before 
lowering tax rates. However, this would require employers tolerating 
higher UI tax rates than under the current system when trust funds are 
relatively flush. 

* Set additional loan conditions while increasing credits on trust 
fund balances: 

Recent proposed rules by Labor would seek to define eligibility for 
interest-free terms on federal UI loans by setting standards states 
would have to meet for maintaining the levels of their trust funds or 
a level of tax "effort" in the years prior to applying for a loan. 
[Footnote 51] While loans clearly serve a vital function in financing 
benefits during difficult economic times, they somewhat reduce the 
incentive for states to maintain robust trust funds. Stricter interest-
free loan qualifications might encourage states to maintain higher 
funding targets, although Labor estimates such effects to be small. 
However, reducing access to interest-free loans could lead states to 
rely more heavily on raising tax rates when UI trust funds fall close 
to zero, which likely coincides with difficult economic periods when 
labor markets might benefit from lower, not higher, taxes. States may 
object to being charged more to take out loans, particularly during a 
recession as severe as the most recent one; in interviews, some state 
representatives expressed a sentiment that the states fund the federal 
trust funds that provide loans when states need them, and therefore 
they should be available interest free. At the same time that rules 
could restrict interest-free loans, paying higher rates of interest on 
trust fund balances above a certain level (say, on balances 
corresponding to an AHCM of 1.0 or higher) could provide a positive 
incentive for states to accumulate more in UI reserves; for a given 
amount of interest, this would mean that states with lower funding 
levels would receive lower rates of interest. 

Conclusions: 

Like UI funding itself, interest in the financial condition of state 
UI trust funds seems to follow the business cycle: during recessions 
that drain reserves and force states to borrow to pay benefits, UI 
stakeholders focus on the potential to improve forward funding in the 
future. But when the economy, and with it trust fund levels, recovers, 
the urgency to do so subsides. As it stands today, the long-term 
decline of UI funding, culminating in widespread borrowing by state 
trust funds and the dire financial condition of the program, raises 
critical questions about the ability of the program to function as it 
has in the past. 

To be sure, no one would argue that forward funding implies that a 
state should never have to borrow to pay benefits. Further, the 
program is designed to allow states significant latitude in deciding 
how much (and how) to tax their employers and how much to pay in 
benefits. Further, a lack of consistent standards for trust fund 
"adequacy" and the decentralization of UI policy make it 
understandable, and to some parties even desirable, that forward 
funding of trust funds varies across states and over time. 

Nevertheless, Labor's prognosis for the ability of borrowing states to 
repay their loans to avoid employer tax penalties is not optimistic. 
States are responding to low trust fund levels by raising tax rates on 
employers, which could undermine recovery. Meanwhile, any increased 
borrowing could change the nature of the program's federal-state 
partnership, with the federal government taking on more chronic 
funding responsibility for paying benefits rather than providing, as 
originally envisioned, a backstop to states when they experience 
financial emergencies. Weakening forward funding could put pressure on 
states to reduce benefits, which might compromise the program's goal 
of providing macroeconomic stability during recessions. 

Now is the time, therefore, to consider changes to federal program 
policies that could better assure the long-term financial structure of 
UI trust funds. The fact that states with an indexed taxable wage base 
have a better record for maintaining solvency and in some cases 
weathering high unemployment suggests one direction that federal 
policymakers might take to preserve the program without compromising 
state needs for flexibility. 

Matter for Congressional Consideration: 

To provide incentives for states to build up and maintain stronger UI 
trust fund reserves, the Congress should begin to consider raising the 
FUTA taxable wage base from its current level of $7,000 and indexing 
this base to average annual wages. At the same time, the Congress 
should consider measures to ameliorate the potential increase in the 
tax burden on employers, such as lowering the FUTA statutory tax rate 
or increasing the FUTA tax credit. Enacting such measures to take 
effect when the current economic situation improves would create more 
robust funding in the future by encouraging states to broaden the 
revenue base for UI funding and maintain a consistent base relative to 
wages. 

Agency Comments: 

We provided a draft of this report to the Department of Labor, which 
provided written comments. Labor generally agreed with the findings 
and conclusions of our report. Labor said that the report is both 
important and timely considering the serious risk facing the financing 
of state UI benefits, which is putting at risk the ability of the UI 
system to act as an effective stabilizer for the economy and may 
result in many states reducing their UI benefit levels. While 
concurring with the report's emphasis on the value of UI forward 
funding, Labor added that there may be additional options to address 
solvency concerns, including greater federal cost sharing such as full 
federal funding of extended benefits and various reinsurance models. 
It also said that complex relationships between solvency, tax effort, 
and differences in benefit adequacy need to be more deeply addressed. 
In response to this comment, we revised the report to provide more 
information from our prior work on the relationship between states' UI 
financial condition and reductions in benefit levels, although we did 
no new analysis beyond what we present here. Labor also said, with 
respect to one of our policy suggestions, that having state tax rate 
adjustments occur more frequently may be inconsistent with improving 
long-term trust fund financing. We agree that the common practice of 
adjusting rates upward in response to lower trust fund reserves, 
regardless of frequency, is inconsistent with forward funding 
principles; we include among our policy options that states change 
their tax structures to raise more revenues during strong, rather than 
weak, economic periods. However, given the mechanism of tying tax 
rates to trust fund levels, we still believe that more frequent 
adjustments may allow states to change rates to raise more revenues 
before trust fund conditions become severe and sharp rate increases 
are required. Labor's comments appear in appendix V. Labor also 
provided technical comments that we incorporated as appropriate. 

As agreed with your offices, unless you publicly announce its contents 
earlier, we plan no further distribution until 30 days after the date 
of this letter. At that time, we will send copies of this report to 
the Secretary of Labor, appropriate congressional committees, and 
other interested parties. We will also make copies available to others 
on request. In addition, the report will be available at no charge on 
GAO's Web site at [hyperlink, http://www.gao.gov]. 

If you have any questions concerning this report, please contact 
Andrew Sherrill at (202) 512-7215. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. GAO staff who made contributions are listed in 
appendix VI. 

Sincerely yours, 

Signed by: 

Andrew Sherrill: 
Director, Education, Workforce, and Income Security Issues: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

The objectives of this report were to (1) describe the current 
condition of state UI trust funds, (2) highlight the policies or 
practices that have contributed to their conditions, and (3) identify 
options for improving state forward funding in the future to better 
ensure the solvency of the UI program. 

To address the first and second objectives, we analyzed UI state 
statistical data on current unemployment insurance financial 
conditions and current program information from the Department of 
Labor's Employment and Training Administration (ETA). We also used 
historical data from ETA to compare the program's current and recent 
finances to that of past years and to research causes of the current 
financial problems. We also reviewed applicable federal and state 
laws, regulations and guidance, and relied on data and reports by the 
Bureau of Labor Statistics, Labor, the Congressional Budget Office, 
the Congressional Research Service, states' workforce agencies and 
related associations, and other UI advocacy and policy groups. We 
supplemented our analysis with interviews with officials from some of 
these organizations. In particular, we conducted in-depth interviews 
with UI program officials from a sample of ten states that represent a 
range of geographic locations, economic conditions, and UI trust fund 
reserve levels. These ten states were Alaska, California, Georgia, 
Maine, Michigan, New York, Oregon, Texas, Utah, and Washington. We 
also reviewed UI governing state and federal legislation, regulations, 
and guidance. We determined that the data we used for our analysis 
were sufficiently reliable to address our key objectives. A 
consultant, an expert in UI financing, also performed analysis of 
state trust funds on our behalf. 

To address the last objective, we synthesized conclusions from our 
statistical analysis of state and national UI program data. We pose 
potential advantages and disadvantages of proposed policy options 
derived from our interviews with state UI program officials and with 
other policy experts. We also reviewed past conclusions and 
recommendations in reports by GAO, DOL, CBO, CRS, four past government 
advisory councils on unemployment compensation, and public policy 
organizations. 

We conducted this performance audit from May 2009 through April 2010 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Unemployment Insurance Measures in the American Recovery 
and Reinvestment Act: 

The American Recovery and Reinvestment Act of 2009 (ARRA) contains 
several provisions to expand and extend unemployment 
compensation.[Footnote 52] The law: 

* extended the Emergency Unemployment Compensation program of 2008 
(EUC) through December 31, 2009; 

* increased weekly benefits by $25 per week, temporarily funded by 
federal money; 

* provided up to $7 billion total in "modernization incentive 
payments" to states whose UI rules contain specific provisions that 
broaden benefit eligibility; 

* waived interest due on Title XII loans through December 31, 2010; 

* provided for the federal government to pay 100 percent, instead of 
50 percent, of the costs of extended benefits payments (EB)[Footnote 
53]; 

* exempted the first $2,400 of unemployment benefits received by 
individuals from tax in 2009; and: 

* provided $500 million total to states for additional administrative 
costs. 

ETA reports that, as of March 26, 2010, total obligations for EUC 
payments for extended benefits equaled $37.2 billion and for the 
additional $25 weekly benefit obligations totaled $12.1 billion; $2.8 
billion in modernization payments have been distributed to 31 states 
and the District of Columbia; $6.5 billion for payments to states to 
cover their portion of EB payments; and the $500 million distribution 
to states for administrative expenses. 

Each state's potential modernization incentive grant is proportional 
to its FUTA taxable wages, payable in two installments. To receive the 
first grant, for one-third of the total available to each state, state 
law must provide for either a base period that uses recent wages or an 
alternative base period using recent wages. Specifically, the regular 
base period must include the most recently completed calendar quarter 
before the start of the benefit year, or if the claimant cannot meet 
monetary qualifying requirements using a regular base period that 
excludes this quarter, the alternative base period must include the 
most recently completed calendar quarter. 

If a state qualifies under this provision, it may receive the 
remaining two-thirds if its eligibility rules include two of four 
possible criteria. These criteria are: 

1. UI benefits are payable to certain individuals seeking only part-
time work. 

2. An individual is not disqualified from UI for separations due to 
certain compelling family reasons. 

3. An additional 26 weeks of benefits is paid to exhaustees who are 
enrolled in and making satisfactory progress in certain training 
programs. 

4. Dependents' allowances of at least $15 per dependent per week, 
subject to a minimum aggregation, are paid to eligible beneficiaries. 

As of March 26, 2010, 31 states and the District of Columbia have 
qualified for $2.8 billion in grants, including 22 that have received 
full payments (see figure 5). The Department of Labor has appealed to 
states to apply for the remaining $4.15 billion in modernization grant 
funding that remained unclaimed as of that date. Any changes that 
states make to state unemployment programs as a result of ARRA's 
modernization provisions must be permanent, and thus could increase 
funding challenges for states in the future.[Footnote 54] 

Figure 5: Distribution of ARRA UI Modernization Incentive Grants, as 
of Mar. 26, 2010: 

[Refer to PDF for image: U.S. map] 

32 states have received incentive payments totaling $2.84 billion. 
Another $4.15 billion is available. 

Received full funding allotment: 
Arkansas: 
Colorado: 
Connecticut: 
Delaware: 
Georgia: 
Hawaii: 
Idaho: 
Illinois: 
Iowa: 
Kansas: 
Maine: 
Massachusetts: 
Minnesota: 
Montana: 
Nevada: 
New Hampshire: 
New Jersey: 
New York: 
Oklahoma: 
Oregon: 
Wisconsin. 

Received first (one-third) share: 
Alaska: 
District of Columbia: 
Michigan: 
New Mexico: 
Ohio: 
South Dakota: 
Vermont: 
Virginia: 
Washington: 
West Virginia: 

No funding yet: 
Alabama: 
Arizona: 
California: 
Florida: 
Indiana: 
Kentucky: 
Louisiana: 
Maryland: 
Mississippi: 
Missouri: 
Nebraska: 
North Carolina: 
North Dakota: 
Pennsylvania: 
Puerto Rico: 
Rhode Island: 
South Carolina: 
Tennessee: 
Texas: 
Utah: 
Virgin Islands: 
Wyoming. 

Source: Employment and Training Administration, Department of Labor. 

[End of figure] 

[End of section] 

Appendix III: Major Characteristics of State UI Programs, as of March 
2010: 

State: Alabama; 
Weekly benefit formula: 1/26 average of 2 highest quarters; 
Minimum weekly benefit: $45; 
Maximum weekly benefit: $265; 
Number of benefit weeks: 15-26; 
Minimum payroll size for benefit eligibility: 20 weeks or $1,500 in 
any quarter; 
2010 taxable wage base (per worker): $8,000; 
2010 minimum & maximum employer tax rates: 0.44%; 6.04%; 
New employer rate: 2.70%. 

State: Alaska; 
Weekly benefit formula: 0.9-4.4% of annual wages + $24 per dependent 
up to $72; 
Minimum weekly benefit: $56-128; 
Maximum weekly benefit: $370-442; 
Number of benefit weeks: 16-26; 
Minimum payroll size for benefit eligibility: Any size[A]; 
2010 taxable wage base (per worker): (indexed to wages): $34,100; 
2010 minimum & maximum employer tax rates: 1.00%; 5.40%; 
New employer rate: 1.96%. 

State: Arizona; 
Weekly benefit formula: 1/25 high quarter wages; 
Minimum weekly benefit: $60; 
Maximum weekly benefit: $240; 
Number of benefit weeks: 12-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $7,000; 
2010 minimum & maximum employer tax rates: 0.02%; 5.40%; 
New employer rate: 2.00%. 

State: Arkansas; 
Weekly benefit formula: 1/26 high quarter wages; 
Minimum weekly benefit: $79; 
Maximum weekly benefit: $441; 
Number of benefit weeks: 9-26; 
Minimum payroll size for benefit eligibility: One employee for 10 or 
more days in a calendar year; 
2010 taxable wage base (per worker): $12,000; 
2010 minimum & maximum employer tax rates: 0.90%; 6.80%; 
New employer rate: 3.70%. 

State: California; 
Weekly benefit formula: 1/23 to 1/26 high quarter wages; 
Minimum weekly benefit: $40; 
Maximum weekly benefit: $450; 
Number of benefit weeks: 14-26; 
Minimum payroll size for benefit eligibility: Over 100 in any quarter; 
2010 taxable wage base (per worker): $7,000; 
2010 minimum & maximum employer tax rates: 1.50%; 6.20%; 
New employer rate: 3.40%. 

State: Colorado; 
Weekly benefit formula: Higher of 60% of 1/26 of 2 consecutive high 
quarter wages, capped by 50% of average weekly earnings or 50% of 1/52 
base period earnings capped by 55% of average weekly earnings; 
Minimum weekly benefit: $25; 
Maximum weekly benefit: $443-487; 
Number of benefit weeks: 13-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $10,000; 
2010 minimum & maximum employer tax rates: 0; 5.40%; 
New employer rate: 1.70%. 

State: Connecticut; 
Weekly benefit formula: 1/26 average of 2 highest quarters + $15 per 
dependent, up to 5; 
dependents allowance capped at weekly benefit amount (For construction 
workers, 1/26 high quarter); 
Minimum weekly benefit: $15-30; 
Maximum weekly benefit: $537-612; 
Number of benefit weeks: 26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $15,000; 
2010 minimum & maximum employer tax rates: 1.90%; 6.80%; 
New employer rate: 3.00%. 

State: Delaware; 
Weekly benefit formula: 1/46 total wages in 2 highest quarters; 
Minimum weekly benefit: $20; 
Maximum weekly benefit: $330; 
Number of benefit weeks: 24-26; 
Minimum payroll size for benefit eligibility: 20 weeks or $1,500 in 
any quarter; 
2010 taxable wage base (per worker): $10,500; 
2010 minimum & maximum employer tax rates: 0.10%; 8.00%; 
New employer rate: 2.10%. 

State: District of Columbia; 
Weekly benefit formula: 1/26 high quarter wages; 
Minimum weekly benefit: $50; 
Maximum weekly benefit: $359; 
Number of benefit weeks: 19-26; 
Minimum payroll size for benefit eligibility: Any size; 
2010 taxable wage base (per worker): $9,000; 
2010 minimum & maximum employer tax rates: 1.30%; 6.60%; 
New employer rate: 2.70%. 

State: Florida; 
Weekly benefit formula: 1/26 high quarter wages; 
Minimum weekly benefit: $32; 
Maximum weekly benefit: $275; 
Number of benefit weeks: 9-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $7,000; 
2010 minimum & maximum employer tax rates: 0.12%; 5.40%; 
New employer rate: 2.70%. 

State: Georgia; 
Weekly benefit formula: 1/42 of wages in highest 2 quarters or 1/21 
high quarter wages; 
Minimum weekly benefit: $44; 
Maximum weekly benefit: $330; 
Number of benefit weeks: 6-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $8,500; 
2010 minimum & maximum employer tax rates: 0.025%; 5.40%; 
New employer rate: 2.62%. 

State: Hawaii; 
Weekly benefit formula: 1/21 high quarter wages; 
Minimum weekly benefit: $5; 
Maximum weekly benefit: $559; 
Number of benefit weeks: 26; 
Minimum payroll size for benefit eligibility: Any size; 
2010 taxable wage base (per worker): (indexed to wages): $38,800; 
2010 minimum & maximum employer tax rates: 0; 5.40%; 
New employer rate: 1.90%. 

State: Idaho; 
Weekly benefit formula: 1/26 high quarter wages; 
Minimum weekly benefit: $72; 
Maximum weekly benefit: $334; 
Number of benefit weeks: 10-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): (indexed to wages): $33,300; 
2010 minimum & maximum employer tax rates: 0.447%; 5.40%; 
New employer rate: 1.00%. 

State: Illinois; 
Weekly benefit formula: 47% of claimant's average weekly wage in 2 
highest quarters; 
Minimum weekly benefit: $51-77; 
Maximum weekly benefit: $385-531; 
Number of benefit weeks: 26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $12,520; 
2010 minimum & maximum employer tax rates: 0.60%; 6.80%; 
New employer rate: 3.10%. 

State: Indiana; 
Weekly benefit formula: 5% of 1st $2,000 of wage credits in high 
quarter, 4% of remaining high quarter wages credits; 
wage credits limited to $9,250; 
Minimum weekly benefit: $50; 
Maximum weekly benefit: $390; 
Number of benefit weeks: 8-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $9,500; 
2010 minimum & maximum employer tax rates: 1.10%; 5.60%; 
New employer rate: 2.70%. 

State: Iowa; 
Weekly benefit formula: 1/19 -1/23 high quarter wages for claimants 
with dependents; 
Minimum weekly benefit: $56-67; 
Maximum weekly benefit: $374-459; 
Number of benefit weeks: 9-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): (indexed to wages): $24,500; 
2010 minimum & maximum employer tax rates: 0; 8.00%; 
New employer rate: 1.00%. 

State: Kansas; 
Weekly benefit formula: 4.25% high quarter wages; 
Minimum weekly benefit: $109; 
Maximum weekly benefit: $436; 
Number of benefit weeks: 10-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $8,000; 
2010 minimum & maximum employer tax rates: 0; 7.40%; 
New employer rate: 4.00%. 

State: Kentucky; 
Weekly benefit formula: 1.3078% base period wages; 
Minimum weekly benefit: $39; 
Maximum weekly benefit: $415; 
Number of benefit weeks: 15-26; 
Minimum payroll size for benefit eligibility: 20 weeks or $1,500 in 
any quarter; 
2010 taxable wage base (per worker): $8,000; 
2010 minimum & maximum employer tax rates: 1.00%; 10.00%; 
New employer rate: 2.70%. 

State: Louisiana; 
Weekly benefit formula: 1/25 of the average of wages in 4 quarters of 
base period x 1.05 x 1.15; 
Minimum weekly benefit: $10; 
Maximum weekly benefit: $247; 
Number of benefit weeks: 26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $7,700; 
2010 minimum & maximum employer tax rates: 0.10%; 6.20%; 
New employer rate: 2.89%. 

State: Maine; 
Weekly benefit formula: 1/22 average wages paid in 2 highest quarters 
of base period + $10 per dependent up to ˝ weekly benefit amount; 
Minimum weekly benefit: $62-93; 
Maximum weekly benefit: $356-534; 
Number of benefit weeks: 22-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $12,000; 
2010 minimum & maximum employer tax rates: 0.44%; 5.40%; 
New employer rate: 1.57%. 

State: Maryland; 
Weekly benefit formula: 1/24 high quarter wages + $8 per dependent up 
to 5 dependents; 
Minimum weekly benefit: $25-65; 
Maximum weekly benefit: $410; 
Number of benefit weeks: 26; 
Minimum payroll size for benefit eligibility: Any size; 
2010 taxable wage base (per worker): $8,500; 
2010 minimum & maximum employer tax rates: 0.60%; 9.00%; 
New employer rate: 2.20%. 

State: Massachusetts; 
Weekly benefit formula: 50% average weekly wage + $25 per dependent up 
to ˝ weekly benefit amount; 
Minimum weekly benefit: $33-49; 
Maximum weekly benefit: $629-943; 
Number of benefit weeks: 10-30; 
Minimum payroll size for benefit eligibility: 13 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $14,000; 
2010 minimum & maximum employer tax rates: 1.26%; 12.27%; 
New employer rate: 2.83%. 

State: Michigan; 
Weekly benefit formula: 4.1% high quarter wages + $6 for each 
dependent up to 5; 
Minimum weekly benefit: $117-147; 
Maximum weekly benefit: $362; 
Number of benefit weeks: 14-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,000 in 
calendar year; 
2010 taxable wage base (per worker): $9,000; 
2010 minimum & maximum employer tax rates: 0.60%; 10.30%; 
New employer rate: 2.70%. 

State: Minnesota; 
Weekly benefit formula: Higher of 50% of 1/13 high quarter wages up to 
43% of State average weekly wages or 50% of 1/52 base period wages up 
to 66% of state average weekly wages; 
Minimum weekly benefit: 38; 
Maximum weekly benefit: $377-585; 
Number of benefit weeks: $11-26; 
Minimum payroll size for benefit eligibility: Any size; 
2010 taxable wage base (per worker): (indexed to wages): $27,000; 
2010 minimum & maximum employer tax rates: 0.556%; 10.70%; 
New employer rate: 2.3116%. 

State: Mississippi; 
Weekly benefit formula: 1/26 high quarter wages; 
Minimum weekly benefit: $30; 
Maximum weekly benefit: $235; 
Number of benefit weeks: 13-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $7,000; 
2010 minimum & maximum employer tax rates: 0.70%; 5.40%; 
New employer rate: 2.70%. 

State: Missouri; 
Weekly benefit formula: 4.00% of the average of the 2 high quarter 
wages; 
Minimum weekly benefit: $35; 
Maximum weekly benefit: $320; 
Number of benefit weeks: 8-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $13,000; 
2010 minimum & maximum employer tax rates: 0.00%; 9.75%; 
New employer rate: 3.51%. 

State: Montana; 
Weekly benefit formula: 1% base period wages or 1.9% wages in 2 high 
quarters; 
Minimum weekly benefit: $125; 
Maximum weekly benefit: $422; 
Number of benefit weeks: 8-28; 
Minimum payroll size for benefit eligibility: $1,000 in current or 
preceding year; 
2010 taxable wage base (per worker): (indexed to wages): $26,000; 
2010 minimum & maximum employer tax rates: 0; 6.12%; 
New employer rate: 2.70%. 

State: Nebraska; 
Weekly benefit formula: ˝ average weekly wages; 
Minimum weekly benefit: $30; 
Maximum weekly benefit: $318; 
Number of benefit weeks: 1-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $9,000; 
2010 minimum & maximum employer tax rates: 0; 5.40%; 
New employer rate: 1.29%. 

State: Nevada; 
Weekly benefit formula: 1/25 high quarter wages; 
Minimum weekly benefit: $16; 
Maximum weekly benefit: $400; 
Number of benefit weeks: 12-26; 
Minimum payroll size for benefit eligibility: 225 in any quarter; 
2010 taxable wage base (per worker): (indexed to wages): $27,000; 
2010 minimum & maximum employer tax rates: 0.25%; 5.40%; 
New employer rate: 2.95%. 

State: New Hampshire; 
Weekly benefit formula: 1%-1.1% annual wages; 
Minimum weekly benefit: $32; 
Maximum weekly benefit: $427; 
Number of benefit weeks: 26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $10,000; 
2010 minimum & maximum employer tax rates: 0.10%; 6.50%; 
New employer rate: 2.70%. 

State: New Jersey; 
Weekly benefit formula: 60% of claimant's average weekly wage + 
dependents allowance; 
Minimum weekly benefit: $87-100; 
Maximum weekly benefit: $600; 
Number of benefit weeks: 1-26; 
Minimum payroll size for benefit eligibility: 1,000 in any year; 
2010 taxable wage base (per worker): (indexed to wages): $29,700; 
2010 minimum & maximum employer tax rates: 0.30%; 5.40%; 
New employer rate: 2.6825%. 

State: New Mexico; 
Weekly benefit formula: 60.0% of average weekly wage paid in base 
period quarter in which wages were highest; 
Minimum weekly benefit: $71-106.50; 
Maximum weekly benefit: $426-526; 
Number of benefit weeks: 16-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 450 in any 
quarter; 
2010 taxable wage base (per worker): (indexed to wages): $20,800; 
2010 minimum & maximum employer tax rates: 0.03%; 5.40%; 
New employer rate: 2.00%. 

State: New York; 
Weekly benefit formula: 1/26 high quarter wages unless high quarter 
wages $3,575 then, 1/25 high quarter wages; 
Minimum weekly benefit: $64; 
Maximum weekly benefit: $405; 
Number of benefit weeks: 26; 
Minimum payroll size for benefit eligibility: 300 in any quarter; 
2010 taxable wage base (per worker): $8,500; 
2010 minimum & maximum employer tax rates: 0.70%; 8.70%; 
New employer rate: 4.10%. 

State: North Carolina; 
Weekly benefit formula: 1/26 high quarter wages; 
Minimum weekly benefit: $43; 
Maximum weekly benefit: $505; 
Number of benefit weeks: 13-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): (indexed to wages): $19,700; 
2010 minimum & maximum employer tax rates: 0; 6.84%; 
New employer rate: 1.20%. 

State: North Dakota; 
Weekly benefit formula: 1/65 of wages in 2 high quarters + ˝ wages in 
3rd high quarter; 
Minimum weekly benefit: $43; 
Maximum weekly benefit: $431; 
Number of benefit weeks: 12-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): (indexed to wages): $24,700; 
2010 minimum & maximum employer tax rates: 0.20%; 9.86%; 
New employer rate: 1.60%. 

State: Ohio; 
Weekly benefit formula: ˝ claimant's average weekly wage + dependents 
allowance of $1-$133 based on claimant's average weekly wage and 
number of dependents; 
Minimum weekly benefit: $106; 
Maximum weekly benefit: $375-508; 
Number of benefit weeks: 20-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $9,000; 
2010 minimum & maximum employer tax rates: 0.30%; 9.00%; 
New employer rate: 2.70%. 

State: Oklahoma; 
Weekly benefit formula: 1/23 high quarter wages; 
Minimum weekly benefit: $16; 
Maximum weekly benefit: $430; 
Number of benefit weeks: 18-26; 
Minimum payroll size for benefit eligibility: 20 weeks or $1,500 in 
any quarter; 
2010 taxable wage base (per worker): (indexed to wages): $14,900; 
2010 minimum & maximum employer tax rates: 0.10%; 5.50%; 
New employer rate: 1.20%. 

State: Oregon; 
Weekly benefit formula: 1.25% base period wages; 
Minimum weekly benefit: $115; 
Maximum weekly benefit: $493; 
Number of benefit weeks: 3-26; 
Minimum payroll size for benefit eligibility: 18 weeks or 1,000 in any 
quarter; 
2010 taxable wage base (per worker): (indexed to wages): $32,100; 
2010 minimum & maximum employer tax rates: 0.90%; 5.40%; 
New employer rate: 2.40%. 

State: Pennsylvania; 
Weekly benefit formula: 1/23-1/25 high quarter wages + $5 for 1 
dependent; 
$3 for 2nd dependent; 
Minimum weekly benefit: $35-43; 
Maximum weekly benefit: $564-572; 
Number of benefit weeks: 16 or 26; 
Minimum payroll size for benefit eligibility: Any size; 
2010 taxable wage base (per worker): (italics = indexed to wages): 
$8,000; 
2010 minimum & maximum employer tax rates: 1.8370%; 13.1576%; 
New employer rate: 3.7030%. 

State: Puerto Rico; 
Weekly benefit formula: 1/11-1/26 high quarter wages; 
Minimum weekly benefit: $7; 
Maximum weekly benefit: $133; 
Number of benefit weeks: 26; 
Minimum payroll size for benefit eligibility: Any size; 
2010 taxable wage base (per worker): $7,000; 
2010 minimum & maximum employer tax rates: 1.40%; 5.40%; 
New employer rate: 2.90%. 

State: Rhode Island; 
Weekly benefit formula: 4.62% high quarter wages + greater of $10 or 
5% of the benefit rate per dependent up to 5 dependents; 
Minimum weekly benefit: $68-118; 
Maximum weekly benefit: $546-682; 
Number of benefit weeks: 8-26; 
Minimum payroll size for benefit eligibility: Any size; 
2010 taxable wage base (per worker): $19,000; 
2010 minimum & maximum employer tax rates: 1.69%; 9.79%; 
New employer rate: 2.36%. 

State: South Carolina; 
Weekly benefit formula: 1/26 high quarter wages; 
Minimum weekly benefit: $20; 
Maximum weekly benefit: $326; 
Number of benefit weeks: 13-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $7,000; 
2010 minimum & maximum employer tax rates: 1.14%; 6.00%; 
New employer rate: 3.40%. 

State: South Dakota; 
Weekly benefit formula: 1/26 high quarter wages; 
Minimum weekly benefit: $28; 
Maximum weekly benefit: $309; 
Number of benefit weeks: 15-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $10,000; 
2010 minimum & maximum employer tax rates: 0; 8.50%; 
New employer rate: 1.20%. 

State: Tennessee; 
Weekly benefit formula: 1/26 of average 2 highest quarters; 
Minimum weekly benefit: $30; 
Maximum weekly benefit: $275; 
Number of benefit weeks: 13-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $9,000; 
2010 minimum & maximum employer tax rates: 0.50%; 10.00%; 
New employer rate: 2.70%. 

State: Texas; 
Weekly benefit formula: 1/25 high quarter wages; 
Minimum weekly benefit: $59; 
Maximum weekly benefit: $406; 
Number of benefit weeks: 10-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $9,000; 
2010 minimum & maximum employer tax rates: 0.26%; 6.26%; 
New employer rate: 2.70%. 

State: Utah; 
Weekly benefit formula: 1/26 high quarter wages; 
Minimum weekly benefit: $29; 
Maximum weekly benefit: $451; 
Number of benefit weeks: 10-26; 
Minimum payroll size for benefit eligibility: Any size; 
2010 taxable wage base (per worker): (indexed to wages): $28,300; 
2010 minimum & maximum employer tax rates: 0.20%; 9.20%; 
New employer rate: 1.20%. 

State: Vermont; 
Weekly benefit formula: Wages in the 2 highest quarters divided by 45; 
Minimum weekly benefit: $64; 
Maximum weekly benefit: $425; 
Number of benefit weeks: 26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $10,000; 
2010 minimum & maximum employer tax rates: 0.80%; 6.50%; 
New employer rate: 1.00%. 

State: Virginia; 
Weekly benefit formula: 1/50 of the 2 highest quarters; 
Minimum weekly benefit: $54; 
Maximum weekly benefit: $378; 
Number of benefit weeks: 12-26; 
Minimum payroll size for benefit eligibility: 20 weeks or $1,500 in 
any quarter; 
2010 taxable wage base (per worker): $8,000; 
2010 minimum & maximum employer tax rates: 0.18%; 6.28%; 
New employer rate: 2.50%. 

State: Virgina Islands; 
Weekly benefit formula: 1/26 high quarter wages; 
Minimum weekly benefit: $33; 
Maximum weekly benefit: $462; 
Number of benefit weeks: 13-26; 
Minimum payroll size for benefit eligibility: Any size; 
2010 taxable wage base (per worker): (indexed to wages): $22,200; 
2010 minimum & maximum employer tax rates: 0; 6.00%; 
New employer rate: 1.00%. 

State: Washington; 
Weekly benefit formula: 3.85% of average of high 2 quarters in base 
period; 
Minimum weekly benefit: $133; 
Maximum weekly benefit: $560; 
Number of benefit weeks: 1-26; 
Minimum payroll size for benefit eligibility: Any size; 
2010 taxable wage base (per worker): (indexed to wages): $36,800; 
2010 minimum & maximum employer tax rates: 0; 5.40%; 
New employer rate: Industry average%. 

State: West Virginia; 
Weekly benefit formula: 1% annual wages; 
Minimum weekly benefit: $24; 
Maximum weekly benefit: $424; 
Number of benefit weeks: 26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $12,000; 
2010 minimum & maximum employer tax rates: 1.50%; 7.50%; 
New employer rate: 2.70%. 

State: Wisconsin; 
Weekly benefit formula: 4% high quarter wages up to maximum weekly 
benefit amount; 
Minimum weekly benefit: $54; 
Maximum weekly benefit: $363; 
Number of benefit weeks: 14-26; 
Minimum payroll size for benefit eligibility: 20 weeks or 1,500 in any 
quarter; 
2010 taxable wage base (per worker): $12,000; 
2010 minimum & maximum employer tax rates: 0; 8.50%; 
New employer rate: 3.25%. 

State: Wyoming; 
Weekly benefit formula: 4% high quarter wages; 
Minimum weekly benefit: $31; 
Maximum weekly benefit: $438; 
Number of benefit weeks: 11-26; 
Minimum payroll size for benefit eligibility: Any size; 
2010 taxable wage base (per worker): (indexed to wages): $22,800; 
2010 minimum & maximum employer tax rates: 0.30%; 9.10%; 
New employer rate: 1.60%. 

Source: ETA, "Significant Provisions of State UI Laws," revised March 
2010. 

[A] For those states with "any size," all workers are covered 
regardless of payroll size or weeks worked. States may have different 
thresholds for agricultural, domestic, and nonprofit employing units. 

[End of table] 

[End of section] 

Appendix IV: Various UI Program Statistics: 

Table 7: States with Loans from the Federal Unemployment Account, as 
of December 31, 2009, and April 1, 2010 (Dollars in Millions): 

State: Alabama; 
12/31/09 balance: $146.1; 
4/1/10 balance: $269.0. 

State: Arizona; 
12/31/09 balance: [Empty]; 
4/1/10 balance: $22.5. 

State: Arkansas; 
12/31/09 balance: $222.6; 
4/1/10 balance: $318.2. 

State: California; 
12/31/09 balance: $5,984.7; 
4/1/10 balance: $8,456.5. 

State: Colorado; 
12/31/09 balance: [Empty]; 
4/1/10 balance: $188.1. 

State: Connecticut; 
12/31/09 balance: $179.6; 
4/1/10 balance: $423.9. 

State: Delaware; 
12/31/09 balance: [Empty]; 
4/1/10 balance: $2.6. 

State: Florida; 
12/31/09 balance: $951.7; 
4/1/10 balance: $1,496.5. 

State: Georgia; 
12/31/09 balance: $70.0; 
4/1/10 balance: $337.0. 

State: Idaho; 
12/31/09 balance: $107.1; 
4/1/10 balance: $187.3. 

State: Illinois; 
12/31/09 balance: $1,168.5; 
4/1/10 balance: $2,081.1. 

State: Indiana; 
12/31/09 balance: $1,488.6; 
4/1/10 balance: $1,807.7. 

State: Kansas; 
12/31/09 balance: [Empty]; 
4/1/10 balance: $65.8. 

State: Kentucky; 
12/31/09 balance: $576.7; 
4/1/10 balance: $759.8. 

State: Maryland; 
12/31/09 balance: [Empty]; 
4/1/10 balance: $103.9. 

State: Massachusetts; 
12/31/09 balance: [Empty]; 
4/1/10 balance: $278.9. 

State: Michigan; 
12/31/09 balance: $3,159.1; 
4/1/10 balance: $3,797.1. 

State: Minnesota; 
12/31/09 balance: $281.1; 
4/1/10 balance: $641.9. 

State: Missouri; 
12/31/09 balance: $474.3; 
4/1/10 balance: $690.2. 

State: Nevada; 
12/31/09 balance: $127.1; 
4/1/10 balance: $331.9. 

State: New Hampshire; 
12/31/09 balance: [Empty]; 
4/1/10 balance: $24.1. 

State: New Jersey; 
12/31/09 balance: $964.1; 
4/1/10 balance: $1,569.9. 

State: New York; 
12/31/09 balance: $2,160.2; 
4/1/10 balance: $3,032.0. 

State: North Carolina; 
12/31/09 balance: $1,606.7; 
4/1/10 balance: $2,138.7. 

State: Ohio; 
12/31/09 balance: $1,727.9; 
4/1/10 balance: $2,229.5. 

State: Pennsylvania; 
12/31/09 balance: $1,871.5; 
4/1/10 balance: $2,814.3. 

State: Rhode Island; 
12/31/09 balance: $127.5; 
4/1/10 balance: $204.2. 

State: South Carolina; 
12/31/09 balance: $692.0; 
4/1/10 balance: $852.0. 

State: South Dakota; 
12/31/09 balance: $7.7; 
4/1/10 balance: $22.8. 

State: Texas; 
12/31/09 balance: $1,322.5; 
4/1/10 balance: $2,035.0. 

State: Vermont; 
12/31/09 balance: [Empty]; 
4/1/10 balance: $23.9. 

State: Virgin Islands; 
12/31/09 balance: $8.4; 
4/1/10 balance: $12.9. 

State: Virginia; 
12/31/09 balance: $122.4; 
4/1/10 balance: $318.3. 

State: Wisconsin; 
12/31/09 balance: $922.0; 
4/1/10 balance: $1,343.8. 

State: United States; 
12/31/09 balance: $26,470.2; 
4/1/10 balance: $38,881.4. 

Source: Employment and Training Administration, Department of Labor. 

[End of table] 

Table 8: UI Contributions, Benefits, and Reserves as a Percentage of 
Total UI-Eligible Wages, 1979-2008: 

Year: 1979; 
Contributions: 1.28; 
Benefits: 0.91; 
Net reserves: 0.91. 

Year: 1980; 
Contributions: 1.11; 
Benefits: 1.34; 
Net reserves: 0.64. 

Year: 1981; 
Contributions: 1.03; 
Benefits: 1.17; 
Net reserves: 0.51. 

Year: 1982; 
Contributions: 1.04; 
Benefits: 1.76; 
Net reserves: -0.23. 

Year: 1983; 
Contributions: 1.18; 
Benefits: 1.44; 
Net reserves: -0.47. 

Year: 1984; 
Contributions: 1.37; 
Benefits: 0.92; 
Net reserves: 0.16. 

Year: 1985; 
Contributions: 1.31; 
Benefits: 0.96; 
Net reserves: 0.68. 

Year: 1986; 
Contributions: 1.16; 
Benefits: 0.99; 
Net reserves: 0.99. 

Year: 1987; 
Contributions: 1.05; 
Benefits: 0.81; 
Net reserves: 1.38. 

Year: 1988; 
Contributions: 0.97; 
Benefits: 0.69; 
Net reserves: 1.71. 

Year: 1989; 
Contributions: 0.86; 
Benefits: 0.71; 
Net reserves: 1.92. 

Year: 1990; 
Contributions: 0.75; 
Benefits: 0.86; 
Net reserves: 1.88. 

Year: 1991; 
Contributions: 0.71; 
Benefits: 1.20; 
Net reserves: 1.49. 

Year: 1992; 
Contributions: 0.78; 
Benefits: 1.10; 
Net reserves: 1.19. 

Year: 1993; 
Contributions: 0.88; 
Benefits: 0.92; 
Net reserves: 1.25. 

Year: 1994; 
Contributions: 0.92; 
Benefits: 0.86; 
Net reserves: 1.32. 

Year: 1995; 
Contributions: 0.87; 
Benefits: 0.80; 
Net reserves: 1.40. 

Year: 1996; 
Contributions: 0.80; 
Benefits: 0.76; 
Net reserves: 1.43. 

Year: 1997; 
Contributions: 0.73; 
Benefits: 0.64; 
Net reserves: 1.50. 

Year: 1998; 
Contributions: 0.62; 
Benefits: 0.58; 
Net reserves: 1.51. 

Year: 1999; 
Contributions: 0.56; 
Benefits: 0.56; 
Net reserves: 1.47. 

Year: 2000; 
Contributions: 0.54; 
Benefits: 0.52; 
Net reserves: 1.46. 

Year: 2001; 
Contributions: 0.52; 
Benefits: 0.81; 
Net reserves: 1.24. 

Year: 2002; 
Contributions: 0.53; 
Benefits: 1.08; 
Net reserves: 0.96. 

Year: 2003; 
Contributions: 0.67; 
Benefits: 1.03; 
Net reserves: 0.64. 

Year: 2004; 
Contributions: 0.78; 
Benefits: 0.81; 
Net reserves: 0.59. 

Year: 2005; 
Contributions: 0.82; 
Benefits: 0.69; 
Net reserves: 0.67. 

Year: 2006; 
Contributions: 0.76; 
Benefits: 0.62; 
Net reserves: 0.78. 

Year: 2007; 
Contributions: 0.67; 
Benefits: 0.64; 
Net reserves: 0.80. 

Year: 2008; 
Contributions: 0.62; 
Benefits: 0.85; 
Net reserves: 0.60. 

Year: Annual average, 1979-2008; 
Contributions: 0.86; 
Benefits: 0.90; 
Net reserves: 1.04. 

Source: Unemployment Insurance Financial Data Handbook, Employment and 
Training Administration, Dept. of Labor. 

[End of table] 

Table 9: UI-taxable Wages as a Percentage of Total UI-eligible Wages, 
States with Indexed Taxable Wage Base vs. Other States, 1979-2008: 

Year: 1979; 
U.S. overall: 0.47; 
States with indexed base: 0.59; 
Non-indexing states: 0.50. 

Year: 1980; 
U.S. overall: 0.45; 
States with indexed base: 0.57; 
Non-indexing states: 0.47. 

Year: 1981; 
U.S. overall: 0.42; 
States with indexed base: 0.57; 
Non-indexing states: 0.44. 

Year: 1982; 
U.S. overall: 0.41; 
States with indexed base: 0.57; 
Non-indexing states: 0.43. 

Year: 1983; 
U.S. overall: 0.43; 
States with indexed base: 0.58; 
Non-indexing states: 0.46. 

Year: 1984; 
U.S. overall: 0.43; 
States with indexed base: 0.58; 
Non-indexing states: 0.45. 

Year: 1985; 
U.S. overall: 0.42; 
States with indexed base: 0.58; 
Non-indexing states: 0.44. 

Year: 1986; 
U.S. overall: 0.41; 
States with indexed base: 0.57; 
Non-indexing states: 0.43. 

Year: 1987; 
U.S. overall: 0.40; 
States with indexed base: 0.57; 
Non-indexing states: 0.41. 

Year: 1988; 
U.S. overall: 0.39; 
States with indexed base: 0.55; 
Non-indexing states: 0.40. 

Year: 1989; 
U.S. overall: 0.39; 
States with indexed base: 0.56; 
Non-indexing states: 0.40. 

Year: 1990; 
U.S. overall: 0.38; 
States with indexed base: 0.56; 
Non-indexing states: 0.38. 

Year: 1991; 
U.S. overall: 0.37; 
States with indexed base: 0.54; 
Non-indexing states: 0.37. 

Year: 1992; 
U.S. overall: 0.36; 
States with indexed base: 0.56; 
Non-indexing states: 0.36. 

Year: 1993; 
U.S. overall: 0.36; 
States with indexed base: 0.56; 
Non-indexing states: 0.36. 

Year: 1994; 
U.S. overall: 0.36; 
States with indexed base: 0.57; 
Non-indexing states: 0.36. 

Year: 1995; 
U.S. overall: 0.35; 
States with indexed base: 0.57; 
Non-indexing states: 0.35. 

Year: 1996; 
U.S. overall: 0.34; 
States with indexed base: 0.56; 
Non-indexing states: 0.34. 

Year: 1997; 
U.S. overall: 0.33; 
States with indexed base: 0.56; 
Non-indexing states: 0.33. 

Year: 1998; 
U.S. overall: 0.32; 
States with indexed base: 0.55; 
Non-indexing states: 0.32. 

Year: 1999; 
U.S. overall: 0.32; 
States with indexed base: 0.55; 
Non-indexing states: 0.31. 

Year: 2000; 
U.S. overall: 0.31; 
States with indexed base: 0.55; 
Non-indexing states: 0.31. 

Year: 2001; 
U.S. overall: 0.30; 
States with indexed base: 0.55; 
Non-indexing states: 0.30. 

Year: 2002; 
U.S. overall: 0.30; 
States with indexed base: 0.56; 
Non-indexing states: 0.29. 

Year: 2003; 
U.S. overall: 0.29; 
States with indexed base: 0.56; 
Non-indexing states: 0.29. 

Year: 2004; 
U.S. overall: 0.29; 
States with indexed base: 0.55; 
Non-indexing states: 0.27. 

Year: 2005; 
U.S. overall: 0.29; 
States with indexed base: 0.55; 
Non-indexing states: 0.27. 

Year: 2006; 
U.S. overall: 0.28; 
States with indexed base: 0.55; 
Non-indexing states: 0.26. 

Year: 2007; 
U.S. overall: 0.27; 
States with indexed base: 0.54; 
Non-indexing states: 0.25. 

Year: 2008; 
U.S. overall: 0.27; 
States with indexed base: 0.53; 
Non-indexing states: 0.25. 

Year: Change, 1979-2008; 
U.S. overall: -0.20; 
States with indexed base: -0.06; 
Non-indexing states: -0.25. 

Source: GAO calculations based on data from Unemployment Insurance 
Financial Data Handbook, Employment and Training Administration, 
Department of Labor. 

[End of table] 

Table 10: States with UI Solvency or Social Cost Taxes as of 2010: 

State: Alabama; 
Purpose of tax: Social cost; 

State: Alaska; 
Purpose of tax: Solvency; 

State: Arkansas; 
Purpose of tax: Solvency; 

State: Colorado; 
Purpose of tax: Solvency & social cost; 

State: Delaware; 
Purpose of tax: Solvency; 

State: Illinois; 
Purpose of tax: Solvency; 

State: Louisiana; 
Purpose of tax: Solvency & social cost; 

State: Massachusetts; 
Purpose of tax: Solvency; 

State: Minnesota; 
Purpose of tax: Solvency; 

State: New Hampshire; 
Purpose of tax: Solvency; 

State: New Jersey; 
Purpose of tax: Solvency; 

State: New York; 
Purpose of tax: Solvency. 

State: Ohio; 
Purpose of tax: Social cost. 

State: Oklahoma; 
Purpose of tax: Solvency. 

State: Pennsylvania; 
Purpose of tax: Solvency & social cost. 

State: Rhode Island; 
Purpose of tax: Solvency. 

State: Texas; 
Purpose of tax: Solvency & social cost. 

State: Utah; 
Purpose of tax: Social Cost. 

State: Virginia; 
Purpose of tax: Solvency & social cost. 

State: Washington; 
Purpose of tax: Solvency & social cost. 

State: Wisconsin; 
Purpose of tax: Solvency. 

State: Wyoming; 
Purpose of tax: Social Cost. 

Source: ETA, Comparison of State Unemployment Insurance Laws, January 
1, 2010. 

[End of table] 

[End of section] 

Appendix V: Comments from the Department of Labor: 

U.S. Department of Labor: 
Assistant Secretary for Employment and Training: 
Washington, D.C. 20210: 

April 2, 2010: 

Mr. Andrew Sherrill: 
Director: 
Education, Workforce, and Income Security Issues: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, D.C. 20548: 

Dear Mr. Sherrill: 

The Employment and Training Administration (ETA) is in receipt of the 
draft Government Accountability Office (GAO) report entitled, 
"Unemployment Insurance Trust Funds: Long-Standing State Financing 
Policies Have Increased Risk of Insolvency" (GA0-10-440). 

The report is both important and timely considering the serious crisis 
facing the financing of state Unemployment Insurance (UI) benefits, 
which is putting at risk the ability of the UI system to act as an 
effective stabilizer for the economy and may result in many states 
reducing their UI benefit levels. The report also accurately focuses 
on the role of state tax cuts as a leading cause in this crisis. 
However, the report does not explore the complex relationships between 
solvency, tax effort and differences in benefit adequacy. These are 
crucial issues which need to be addressed. 

Given the enormity of the predicted level of borrowing during the 
current recession and the prolonged impact it will have on solvency 
and program viability moving forward, it was very fitting that GAO is 
pointing out the value of forward-funding for the program. GAO's 
policy options to improve long-term trust fund financing are welcomed 
by ETA, and we look forward to working with Congress and the states on 
strategies that will move state UI trust funds towards solvency, and 
to creating a system that will be more equitable among the states. 

It is important to note, however, that there may be additional options 
to address solvency concerns, including options for greater Federal 
cost-sharing, such as full Federal payment of extended benefits and 
various re-insurance models. We would also like to point out that the 
option of having state tax rate adjustments occur more frequently than 
on an annual basis may be inconsistent with the purported goal of 
improving long-term trust fund financing. To enhance the forward-
funding operation of state tax systems, it is the level of rates that 
is important rather than the speed of correction. The purpose of 
lagging tax rate changes is to forestall any tax rate increases until 
a recession has passed. The lack of forward-funding in this case has 
produced the result that states are now faced with raising employer 
taxes while the recession continues, a circumstance that would have
been avoided in great measure if there had been adequate forward-
funding measures implemented. 

Enclosed are ETA's technical comments on the draft report. If you 
would like additional information, please do not hesitate to call me 
at (202) 693-2700. 

Sincerely, 

Signed by: 

Jane Oates: 
Assistant Secretary: 

Enclosures: 

[End of section] 

Appendix VI: GAO Contact and Staff Acknowledgments: 

Contact: 

Andrew Sherrill (202) 512-7215 or sherrilla@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts above, Michael J. Collins, Mark M. 
Glickman, Kristy Kennedy, Charles A. Jeszeck, Jessica A. Botsford, 
Susan C. Bernstein, and James Bennett made important contributions to 
this report. 

[End of section] 

Related GAO Products: 

Employee Misclassification: Improved Coordination, Outreach, and 
Targeting Could Better Ensure Detection and Prevention. [hyperlink, 
http://www.gao.gov/products/GAO-09-717]. Washington, D.C.: August 10, 
2009. 

Unemployment Insurance: More Guidance and Evaluation of Worker- 
Profiling Initiative Could Help Improve State Efforts. [hyperlink, 
http://www.gao.gov/products/GAO-07-680]. Washington, D.C.: June 14, 
2007. 

Human Service Programs: Demonstration Projects Could Identify Ways to 
Simplify Policies and Facilitate Technology Enhancements to Reduce 
Administrative Costs. [hyperlink, 
http://www.gao.gov/products/GAO-06-942]. Washington, D.C.: Sept. 19, 
2006. 

Unemployment Insurance: States' Tax Financing Systems Allow Costs to 
Be Shared among Industries. [hyperlink, 
http://www.gao.gov/products/GAO-06-769]. Washington, D.C.: July 26, 
2006. 

Unemployment Insurance: Enhancing Program Performance by Focusing on 
Improper Payments and Reemployment Services. [hyperlink, 
http://www.gao.gov/products/GAO-06-696T]. Washington, D.C.: May 4, 
2006. 

Unemployment Insurance: Factors Associated with Benefit Receipt and 
Linkages with Reemployment Services for Claimants. [hyperlink, 
http://www.gao.gov/products/GAO-06-484T]. Washington, D.C.: March 15, 
2006. 

Unemployment Insurance: Factors Associated with Benefit Receipt. 
[hyperlink, http://www.gao.gov/products/GAO-06-341]. Washington, D.C.: 
March 7, 2006. 

Unemployment Insurance: Better Data Needed to Assess Reemployment 
Services to Claimants. [hyperlink, 
http://www.gao.gov/products/GAO-05-413]. Washington, D.C.: June 24, 
2005: 

Unemployment Insurance: Survey of State Administrators and Contacts 
with Companies Promoting Tax Avoidance Practices. [hyperlink, 
http://www.gao.gov/products/GAO-03-819T]. Washington, D.C.: June 19, 
2003. 

Unemployment Insurance: States' Use of the 2002 Reed Act Distribution. 
[hyperlink, http://www.gao.gov/products/GAO-03-496]. Washington, D.C.: 
March 6, 2003. 

Unemployment Insurance: Increased Focus on Program Integrity Could 
Reduce Billions in Overpayments. [hyperlink, 
http://www.gao.gov/products/GAO-02-697]. Washington, D.C.: July 12, 
2002. 

Unemployment Insurance: Role as Safety Net for Low-Wage Workers Is 
Limited. [hyperlink, http://www.gao.gov/products/GAO-01-181]. 
Washington, D.C.: December 29, 2000. 

Unemployment Insurance: Program's Ability to Meet Objectives 
Jeopardized. [hyperlink, http://www.gao.gov/products/GAO/HRD-93-107]. 
Washington, D.C.: September 28, 1993. 

Unemployment Insurance: Trust Fund Reserves Inadequate to Meet 
Recession Needs. [hyperlink, 
http://www.gao.gov/products/GAO/HRD-90-124]. Washington, D.C.: May 31, 
1990. 

Unemployment Insurance: Trust Fund Reserves Inadequate. [hyperlink, 
http://www.gao.gov/products/GAO/HRD-88-55]. Washington, D.C.: 
September 26, 1988. 

[End of section] 

Footnotes: 

[1] The term "forward funding" usually refers to budget authority that 
is made available for obligation beginning in the last quarter of the 
fiscal year for the financing of ongoing activities (usually grant 
programs) during the next fiscal year. GAO, A Glossary of Terms Used 
in the Federal Budget Process, [hyperlink, 
http://www.gao.gov/products/GAO-05-734SP] (September 2005). However, 
in this report we use "forward funding" to refer to the practice of 
states accumulating reserves in unemployment insurance trust funds in 
anticipation of increased outlays in the future. 

[2] Pub. L. No. 74-271. 

[3] Some states allow for some workers who quit for certain work- 
related or personal reasons to be eligible for UI benefits. The 
American Recovery and Reinvestment Act of 2009 (ARRA) Pub. L. No. 111- 
5, Div. B, § 2003 authorized the Secretary of Labor to make 
unemployment compensation modernization incentive payments to states 
that amend their laws to allow UI payments to individuals who quit 
employment for certain compelling family reason such as following 
their spouse to a new job. 

[4] We use the term "states" to refer to the administrative entities 
of the 53 unemployment insurance programs that cover the 50 states, 
the District of Columbia, Puerto Rico, and the Virgin Islands. 

[5] Almost all wage and salary workers are covered by the UI program. 
Federal civilian employees and ex-service members are covered under 
separate programs administered by the states for the federal 
government and paid for by the various federal agencies or military 
departments. Railroad workers are covered under a program administered 
by the Railroad Retirement Board. 

[6] Federal-State Extended Unemployment Compensation Act of 1970, Pub. 
L. No. 91-373, Title II 26 U.S.C. § 3304, note. 

[7] Supplemental Appropriations Act, 2008, Pub. L. No. 110-252. As 
provided in Pub. L. No. 111-144, the EUC08 program has been extended 
through April 5, 2010. 

[8] Under ARRA, as amended by Pub. L. No. 111-144, the federal 
government is financing 100 percent of EB benefits through April 5, 
2010. For more discussion of UI-related measures in ARRA, see appendix 
II. 

[9] Alaska, New Jersey, and Pennsylvania also withhold UI taxes from 
employee wages. 

[10] 26 U.S.C.§ 3301. 

[11] 26 U.S.C. § 3302. 

[12] GAO has conducted past reports on UI administrative funding and 
problems states have had with funding technologies to improve the 
efficiency and integrity in administering the program. See GAO, Human 
Service Programs: Demonstration Projects Could Identify Ways to 
Simplify Policies and Facilitate Technology Enhancements to Reduce 
Administrative Costs, GAO-06-942 (Washington, D.C.: Sept. 19, 2006); 
and Unemployment Insurance: Increased Focus on Program Integrity Could 
Reduce Billions in Overpayments, GAO-02-697 (Washington, D.C.: July 
12, 2002). 

[13] Title XII of the Social Security Act, 42 U.S.C. §§ 1321 - 1324. 

[14] Labor exchange services include job search assistance, job 
referral, placement assistance for job seekers, re-employment services 
to UI claimants, and recruitment services to employers with job 
openings. 

[15] See GAO, Unemployment Insurance: States' Tax Financing Systems 
Allow Costs to Be Shared Among Industries, [hyperlink, 
http://www.gao.gov/products/GAO-06-769] (Washington, D.C.: July 2006), 
for a more detailed discussion of experience rating. Some states levy 
social cost taxes to recover uncollected benefit costs, such as those 
paid to unemployed individuals but not charged to the firms for whom 
the employers had worked. See table 10 in appendix IV for more details. 

[16] The term Reed Act refers to a part of the Employment Security 
Financing Act of 1954, Pub. L. No. 83-567. The provisions referred to 
are found in Title IX of the Social Security Act, 42 U.S.C. §§ 1101- 
1110. 

[17] 42 U.S.C. § 1103(c)(2). 

[18] For more information on congressional changes to the Reed Act's 
statutory ceilings, see Congressional Research Service, The 
Unemployment Fund and Reed Act Distributions, RS22006 (Washington, 
D.C.: Feb. 17, 2009). 

[19] New Hampshire allows for quarterly adjustments to tax rates based 
on quarterly measurements of the trust fund, and Tennessee can 
activate 6-month tax schedules. 

[20] 42 U.S.C. § 1322(b)(2). In addition to repaying a loan by 
September 30 the state may not have another advance during the 
calendar year and must meet funding goals established under 
regulations issued by the Secretary of Labor. The requirement that 
Labor establish funding goals was added by the Balanced Budget Act of 
1997 (Pub. L. No. 105-33, § 5404). Labor has published proposed rules 
on funding goals which have yet to be finalized. See 74 Fed. Reg. 
30,402 (June 25, 2009). ARRA provided that all loans from the federal 
government are interest-free until December 31, 2010, 42 U.S.C. § 
1322(b)(10) (as added by Pub. L. No. 111-5, Div. B, § 2004). 

[21] See 26 U.S.C. § 3302(f). 

[22] This rate of 13.5 percent or greater is for the most recent 12- 
month period for which data are available. 

[23] 42 U.S.C. § 1322(b)(9). 

[24] Unless stated otherwise, in this report "total wages" are total 
wages in UI-covered employment. 

[25] National Commission on Unemployment Compensation, Unemployment 
Compensation: Final Report (July 1980). 

[26] GAO, Unemployment Insurance: Trust Fund Reserves Inadequate, 
[hyperlink, http://www.gao.gov/products/GAO/HRD-88-55] (Washington, 
D.C.: Sept. 26, 1988). 

[27] Federal State Unemployment Compensation System: A Study Prepared 
by the Congressional Research Service of the Library of Congress 
(Washington, D.C.: Sept. 8, 1988). 

[28] GAO, Unemployment Insurance: Program's Ability to Meet Objectives 
Jeopardized, [hyperlink, http://www.gao.gov/products/GAO/HRD-93-107] 
(Washington, D.C.: Sept. 28, 1993). 

[29] Advisory Council on Unemployment Compensation, Defining Federal 
and State Roles in Unemployment Insurance (Washington, D.C.:1996). 

[30] The IUR is the average weekly number of insured workers divided 
by the sum of average monthly UI-covered employment and average 
monthly "reimbursable" employment, which includes the UI-covered 
public and nonprofit sectors. A state's IUR is typically much lower 
than its total unemployment rate because many unemployed workers do 
not qualify for benefits, typically because of low applications, 
eligibility denials, or benefit exhaustion. 

[31] Duration figures reported by ETA equal the number of weeks 
compensated during the year divided by the number of first payments. 
The figures may include more than one period of continuous 
unemployment. It excludes all unemployment for which no benefits were 
paid, such as waiting periods, disqualifications, and any time after 
exhaustion of benefits. 

[32] Because total wage data are incomplete for 2009, we cannot yet 
calculate this percentage. 

[33] National Association of State Workforce Agencies (NASWA), UI 
Trust Fund Solvency Survey (December 2009). Florida, Hawaii, Indiana, 
and Massachusetts all took action in their 2010 legislative sessions 
to limit the impact of scheduled rate increases. 

[34] A state can avoid its employers' FUTA tax credit reduction for a 
year by making repayments of a certain amount prior to November 9 of 
that year. 26 U.S.C. § 3302(g). 

[35] Although the government does not officially set dates for the 
start and end of recessions, business cycle dates announced by the 
National Bureau of Economic Research (NBER) Business Cycle Dating 
Committee are widely accepted. While the committee does not set hard 
criteria for defining recession, most of the periods defined this way 
consist of two or more quarters of declining gross domestic product. 
For more on NBER's process for determining business cycle dates, see 
[hyperlink, http://www.nber.org/cycles/recessions_faq.html]. While 
NBER officially dates separate recessions beginning in 1980 and 1981, 
we consider them as one economic event given the short period of 
recovery between them. According to NBER, the recessions began in 1980 
Q1, 1981 Q3, 1990 Q3, 2001 Q1, and 2007 Q4. Because of data 
constraints, we use end-of-year HCM and IUR data for the 1980 and 1990 
recessions, and quarterly data for the 2001 and 2007 recessions. We 
categorized a state as a "borrowing" state if it had an unpaid end-of-
year loan balance to the federal government during the business cycle 
starting with each recession. Additional states that we do not 
categorize as a borrower may have received cash flow loans that they 
repaid during the same calendar year as long as they had a zero loan 
balance at the end of the year. 

[36] Some states have indexed their taxable wage base for only certain 
years from 1979 to 2010; others have raised and lowered their bases, 
without indexing. We categorize states as indexing their wage base if 
the base in a particular year exceeded the FUTA tax base and is 
adjusted based on changes in average wages in the state. 

[37] In 1982, Pub. L. No. 97-248 §271(c) amended 26 U.S.C.§ 3302(b), 
increasing the state maximum rate to 5.4 percent effective in 1985. 

[38] To ensure that all employers receive the maximum credit of 5.4 
percent against the Federal payroll tax, all state laws provide for 
assignment of a contribution rate of 5.4 percent or higher. Present 
federal law permits reduced rates for newly subject employers or 
employers with at least 1 year of experience with unemployment or 
other factors bearing a direct relation to unemployment risk. As noted 
in our 2006 report, the actual maximum tax rate in a state can change 
from 1 year to the next, because of the use of different schedules or 
changes in factors used to calculate a tax rate by formula. For 
example, Massachusetts state law caps its maximum tax rate at 15.4 
percent, but, as of July 2009, see the state had set the maximum rate 
at 12.27 percent. For more information, see GAO, Unemployment 
Insurance: States' Tax Financing Systems Allow Costs to Be Shared 
among Industries, GAO-06-769 (Washington, D.C.: July 2006). 

[39] DOL calculates a state's adequate financing rate by estimating 
the tax rate that would be charged to all employers if there were no 
experience rating. They assume the rate is equal to the amount needed 
to cover benefit payments plus a solvency amount (based on what a 
state would need to have in its trust fund to achieve an AHCM of 1). 

[40] See U.S. Department of Labor, Office of Workforce Security, 
Division of Fiscal and Actuarial Services, 2009: Significant Measures 
of State UI Tax Systems (December 2009). 

[41] The states who met or exceeded their adequate financing rates 
from 2006-2009 were Maine, Mississippi, Montana, and New Mexico. 

[42] The insured unemployment rate is calculated in terms of UI-
covered employment, while the total unemployment rate is calculated as 
a percentage of the labor force. 

[43] According to our 2007 report, there is some evidence that the 
general decline in UI since the 1950s is partly explained by the 
reduction in union employment--making workers less aware of benefits-- 
and the migration of manufacturing from high-benefit states to low- 
benefit states--making applying for benefits less remunerative. For 
more information, see GAO, Unemployment Insurance: Low-Wage and Part- 
Time Workers Continue to Experience Low Rates of Receipt, [hyperlink, 
http://www.gao.gov/products/GAO-07-1147] (Washington, D.C.: Sept. 7, 
2007). 

[44] States administer UI re-employment services to help claimants 
obtain employment before exhausting UI benefits. These services can 
impact UI trust fund levels by reducing the number of weeks claimants 
receive benefits. See GAO, Unemployment Insurance: More Guidance and 
Evaluation of Worker-Profiling Initiative Could Help Improve State 
Efforts, [hyperlink, http://www.gao.gov/products/GAO-07-680] 
(Washington, D.C.: June 2007); Unemployment Insurance: Enhancing 
Program Performance by Focusing on Improper Payments and Reemployment 
Services, [hyperlink, http://www.gao.gov/products/GAO-06-696T] 
(Washington, D.C.: May 4, 2006); Unemployment Insurance: Factors 
Associated with Benefit Receipt and Linkages with Reemployment 
Services for Claimants, [hyperlink, 
http://www.gao.gov/products/GAO-06-484T] (Washington, D.C.: Mar. 15, 
2006); and Unemployment Insurance: Better Data Needed to Assess 
Reemployment Services to Claimants, [hyperlink, 
http://www.gao.gov/products/GAO-05-413] (Washington, D.C.: June 2005). 

[45] See [hyperlink, http://www.gao.gov/products/GAO/HRD-88-55] and 
GAO, Unemployment Insurance: Program's Ability to Meet Objectives 
Jeopardized, [hyperlink, http://www.gao.gov/products/GAO/HRD-93-107] 
(Washington, D.C.: Sept. 28, 1993). 

[46] Pub. L. No. 111-5, as amended by Pub. L. No. 111-144. 

[47] For comparison, the taxable wage base for contributions to Social 
Security, which is indexed to average wages, rose from $35,700 per 
worker per year in 1983 to $102,000 in 2008, an increase of 186 
percent. 

[48] This calculation does not correct for any changes in the wage 
distribution since 1983 that might affect the relationship between the 
taxable wage base and total UI revenue collected each year. 

[49] For more on experience rating and the impact on UI tax rates, see 
GAO, Unemployment Insurance: States' Tax Financing Systems Allow Costs 
to Be Shared among Industries, GAO-06-769 (Washington, D.C.: July 
2006). 

[50] These efforts might include challenging laid off employees' 
eligibility to receive benefits, trying to get a new experience rating 
by changing the identity of the company (perhaps through a sham sale 
or new name), or declaring that a firm's employees are independent 
contractors and therefore outside the UI system. See GAO, Unemployment 
Insurance: Survey of State Administrators and Contacts with Companies 
Promoting Tax Avoidance Practices, [hyperlink, 
http://www.gao.gov/products/GAO-03-819T] (Washington D.C.: June 19, 
2003), for more on this issue. 

[51] 42 U.S.C. § 1322(b)(2)(C). In the preamble to its proposed 
regulations Labor described three approaches it considered involving 
both solvency and tax effort criteria states would have to meet in 
order to qualify for interest-free "cash flow" advances. In one 
approach, a state would need to maintain an AHCM of 1.0 in at least 1 
of the 5 years prior to obtaining a loan and, for each year between 
the last year in which the solvency goal was met and the year of the 
potential loan, need to collect unemployment taxes (measured as a 
percentage of total wages) of at least 80 percent of the prior year's 
rate; and the tax rate would have to be at least as high as 75 percent 
of the percentage of benefits paid out. A second approach would set 
only the solvency requirement, not the tax effort condition, and a 
third approach would define the solvency standard as a reserve ratio 
of 1.7 percent instead of an AHCM of 1.0. After reviewing all three 
approaches, DOL selected the first one to include in its proposed 
rule. See Employment and Training Administration, 20 CFR Part 606, 
"Federal- State Unemployment Compensation (UC) Program; Funding Goals 
for Interest-Free Advances; Proposed Rule," 74 Fed. Reg. 30,402 (June 
25, 2009). DOL officials told us that they plan to issue a final rule 
in June 2010, but may not implement the rule for a few years. 

[52] Pub. L. No. 111-5. 

[53] Congress extended EUC, increased weekly benefits, and full 
funding of EB through February 28, 2010 (Department of Defense 
Appropriations Act, 2010 Pub. L. No. 111-118, December 19, 2009) and 
then enacted another extension through April 5, 2010 (Temporary 
Extension Act of 2010, Pub. L. No. 111-144, Mar. 2, 2010). 

[54] A state may delay the effective date of a provision to qualify 
for an incentive payment up to 12 months. 

[End of section] 

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