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First States to Run Out of Money for Unemployment

As part of our investigation into unemployment insurance, here’s a look at the trust funds of the first eight states to run out of money in the good years before the current recession.  Each of the states had low—or negative—trust fund balances even before the recession started.

The blue horizontal line indicates the recommended amount a state should have in its trust fund for unemployment. The green horizontal line indicates the average amount states actually have in reserve.

  
 
 
Years
of
Reserves

How we arrived at these numbers: It matters how much money is in a state trust fund—but it also matters how much is flowing out. To assess how long a state’s reserves would last at a recession-level unemployment rate, the federal government uses the Average High Cost Multiplier, defined as how long a state could sustain payments equal to the highest amount they paid out in the last 20 years, without additional revenue coming in. So, an AHCM of 0.5 means a state has enough money saved to pay out recession-level benefits for 6 months. (Since the current recession is worse than any other period during the past 20 years, the estimate almost certainly lowballs states’ needs.)

Source: Department of Labor, Significant Measures of UI Tax Systems