States prepare for unemployment funds to run out

Published: May. 14, 2020 at 4:11 PM EDT
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More people in our region are out of a job than ever before, and the fund used to pay unemployment claims is on the brink of running dry.

It's called the Unemployment Insurance Trust Fund, While benefits will still be paid, there's a lot of questions about borrowing money and who could be saddled with helping to repay the money.

State unemployment benefits are funded by special taxes on employers and paid through state trust funds. Each state sets its own tax rate and benefit payment amounts. When the reserves run low, it's time to ask for help.

During the weekend, Ohio surpassed the $2 billion mark in money paid out to unemployment claims.

The numbers are historic, and with a loss of revenue from employers, states are having to look to the government for assistance.

Ohio has put in a request for $3.1 billion but doesn’t expect to need all of it.

“We’re still waiting to see how the federal government might structure the terms of that loan arrangement,” said Kimberly Hall, director of Ohio Department of Jobs and Family Services. “They might do it in a different kind of way than they did with the great depression.”

West Virginia was one of the first few states to have secured a line of credit, up to $375 million through May, June and July.

"Typically the first month after the first quarter, April is their largest month for revenues,” said Scott Adkins, acting WorkForce West Virginia commissioner. “We usually get about 90 to 100 million dollars in for the trust fund. This month we’ve taken in so far about 40 million so you can see there’s about a 55 percent reduction.”

According to the Department of Labor, almost 33 percent of Kentucky’s workforce filed unemployment claims during the pandemic shutdown, the highest in the country. Recent restrictions heavily impacted the manufacturing sector, a key piece of the Bluegrass State's economy.

"For our states, especially Kentucky and West Virginia, we’re usually lagging a few percentage points behind the national unemployment rates already," said Jordan Harris, founder of the Pegasus Institute. "So we realistically could be seeing 12 and a half percent or more unemployment in both of those states for sure through the remained of this year and into next year."

If the higher than average unemployment rate stretches into next year, it may take time for states to pay the funds back, which could rack up hundreds of thousands of dollars in interest.

That's because Ohio, West Virginia and Kentucky are three of 22 states that do not qualify for interest free lending thanks to their solvency rates, a number based on financial stability and likeliness to pay the money back.

All three of our states solvency rates are well below the 1.0 mark that states must meet for interest-free loans.

West Virginia sits at .52, Kentucky at .57, and Ohio has some of the worst ratings in the country with .42.

The question then becomes how would states pay the money back?

“Two key levers in terms of what comes into the fund and the only way you can kind of calibrate that is either by the amount of tax that employers pay in or the amount of benefit that individuals receive,” Hall said. “Those are the two levers that have to work well together over time to populate the fund.”

Decisions that could affect businesses and job growth for years to come.

"Emerging out of this, where companies choose to locate, where companies choose to expand, where companies choose to operate businesses, " Harris said. "This is going to be one of those factors that gets brought into the calculation and that’s one of the things we worry about considerably in Kentucky. "

For perspective after the recession, Ohio borrowed $3.4 billion from the federal government and was finally able to pay it back in 2016. But the state also ended up shelling out $258 million in interest.

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