The purpose of this current report is to revisit the trust fund crisis of 2010 to answer three hypothetical questions:
- Could the trust fund solvency crisis have been avoided had all states accumulated the amount of pre-recession trust fund reserves recommended by financing experts?
- How much did employers need to contribute on a per-employee basis to have ensured adequate pre-recession trust fund reserves?
- By how much will employer contributions need to increase in the future for state trust funds to prepare for the next recession?
The remainder of the paper is structured as follows: Section 1 provides a brief overview of the UI program, the financing of UI benefits, and a history of previous financing crises. Section 2 summarizes the extent of borrowing during the Great Recession and places today's crisis in a historical context. Section 3 compares three generally accepted measures of solvency and shows how only a handful of states met even the least rigorous of the measures going into the recent recession.
Sections 4 to 6 apply a basic accounting framework to estimate (1) the number of states that would have borrowed had all states entered the recession with adequate reserves; (2) the amount of employer contributions that would have been necessary following the 2001 recession for all state trust funds to have been prepared for the recent recession; and (3) the amount of new reserves necessary for states to be solvent by the end of 2016. The paper concludes with a brief discussion of the UI financing factors that determine a state's capacity to accumulate pre-recession trust fund reserves.