The Unemployment Trust Fund (UTF):
State Insolvency and Federal Loans to States
Julie M. Whittaker
Specialist in Income Security
September 20, 2012
Congressional Research Service
7-5700
www.crs.gov
RS22954
CRS Report for Congress
Prepared for Members and Committees of Congress
The Unemployment Trust Fund (UTF): State Insolvency and Federal Loans to States
Summary
During some recessions, current taxes and reserve balances were insufficient to cover state
expenditures for unemployment compensation (UC) benefits. UC benefits are an entitlement, and
states are legally required to pay benefits even if the state account is insolvent. Some states may
borrow funds from the Federal Unemployment Account (FUA) within the Unemployment Trust
Fund (UTF) to meet UC benefit obligations. The 2009 stimulus package (the American Recovery
and Reinvestment Act of 2009, P.L. 111-5 §2004) temporarily waives interest payments and the
accrual of interest on these loans to states from the FUA.
This report summarizes how insolvent states may borrow funds from the federal account within
the UTF to meet their UC benefit obligations. Outstanding loans listed by state may be found at
the Department of Labor’s website: http://www.workforcesecurity.doleta.gov/unemploy/
budget.asp#tfloans.
In 2011, 20 states and the Virgin Islands had a state tax credit reduction applied to the calculation
of the federal unemployment tax (FUTA): Michigan (0.9), Indiana (0.6), Arkansas (0.3),
California (0.3), Connecticut (0.3), Florida (0.3), Georgia (0.3), Illinois (0.3), Kentucky (0.3),
Minnesota (0.3), Missouri (0.3), North Carolina (0.3), New Jersey (0.3), Nevada (0.3), New York
(0.3), Ohio (0.3), Pennsylvania (0.3), Rhode Island (0.3), Virginia (0.3), Virgin Islands (0.3), and
Wisconsin (0.3). As a result, in Michigan, a credit reduction of 0.9 was applied retroactively to
tax year 2011 earnings and the net FUTA tax during 2011 for Michigan employers was 1.5% on
the first $7,000 of each employee’s earnings. In Indiana (with a credit reduction of 0.6), the net
FUTA tax during 2011 for Indiana employers was 1.2% on the first $7,000 of each employee’s
earnings. In the other 19 states (with a 0.3% credit reduction), the net FUTA tax for 2011 was
0.9%. For all other states, the net FUTA tax was 0.6%.
H.R. 650 would extend the suspension of interest accrual on federal loans to states through 2012.
H.R. 3346 and S. 1804 would also allow states to enter into an agreement with the U.S.
Department of Labor (DOL) to temporarily suspend the accrual of interest for FY2012. In
addition, states that otherwise have employers facing a decreased state tax credit on federal
unemployment taxes would be able to opt to suspend the reduction in credit for tax year 2012. To
have these options available to the state, the state would be required to continue to calculate
regular unemployment benefit entitlements (both in weekly amount and total weeks available) as
required by state law on the date of enactment of this proposal. States with no outstanding
unemployment loans within the UTF would earn an additional two percentage points in interest
on the (positive) average daily balance in the state’s UTF account.
This report will be updated to reflect major changes in state UTF account solvencyMay 5, 2014
The House Ways and Means Committee is making available this version of this Congressional Research Service
(CRS) report, with the cover date shown, for inclusion in its 2014 Green Book website. CRS works exclusively
for the United States Congress, providing policy and legal analysis to Committees and Members of both the
House and Senate, regardless of party affiliation.
Congressional Research Service
RS22954
The Unemployment Trust Fund (UTF): State Insolvency and Federal Loans to States
Summary
Although states have a great deal of autonomy in how they establish and run their unemployment
insurance programs, federal law requires states to promptly pay Unemployment Compensation
(UC) benefits as provided under state law. During some recessions, current taxes and reserve
balances may be insufficient to cover state obligations for UC benefits. States may borrow funds
from the federal loan account within the Unemployment Trust Fund (UTF) to meet UC benefit
obligations.
This report summarizes how insolvent states may borrow funds from the UTF loan account to
meet their UC benefit obligations. It includes the manner in which states must repay federal UTF
loans. It also provides details on how the UTF loans may trigger potential interest accrual and
explains the timetable for increased net Federal Unemployment Taxes Act (FUTA) taxes if the
funds are not repaid promptly.
Outstanding loans listed by state may be found at the Department of Labor’s website:
http://www.workforcesecurity.doleta.gov/unemploy/budget.asp#tfloans.
Congressional Research Service
The Unemployment Trust Fund (UTF): State Insolvency and Federal Loans to States
Contents
Unemployment Compensation and the Unemployment Trust Fund......................, Unemployment Taxes, and a State’s Obligation to Pay
Benefits .......................... 1
Unemployment Taxes ...................................................................................................................... 1
Federal Unemployment Taxes ...... 1
State and Federal Unemployment Taxes ............................................................................................. 1
Broad Guidelines for State Unemployment Taxes 1
State Unemployment Taxes (SUTA) ..................................................................... 2
Adequate Trust Fund Balances ............................ 1
Federal Unemployment Taxes (FUTA) .......................................................................................... 2
Insolvency: Insufficient UTF Reserve Balances 2
States Required to Pay UC Benefits .......................................................................................... 7
Insolvent States Required to Pay UC Benefits ....2
Funds Available for Loans to States Within the UTF ...................................................................... 73
Mechanism for Receiving a Loan from the UTF ............................................................................ 4
Loan Repayment.................. 7
Interest Charges on Loans ............................................................................................................ 7
Expired Provision: Temporary Waiver of Interest in 2009 Stimulus Package4
Federal Tax Increases on Outstanding Loans Through Credit Reductions .................... 9
Loan Repayment ................ 4
Basic Credit Reduction .............................................................................................................. 9
Federal Tax Increases on Outstanding Loans Through Credit Reductions 5
Additional Credit Reductions: 2.7 Add-on and BCR Add-on ................................ 9
Credit Reduction ..................... 5
Avoiding Some or All of the Credit Reduction .......................................................................................... 10
How the Credit Reduction May be Mitigated: Avoidance or Cap 6
Revenue from Credit Reductions Reduce State UTF Loans ............................................... 11
Current Status of Outstanding Loans, Accrued Interest Owed, and State Tax Credit
Reductions7
Interest Charges on Loans ............................................................................................................... 7
Status of Outstanding Loans, Accrued Interest Owed, and State Tax Credit Reductions................ 9
Tables
Table 1.Schedule of State Tax Credit Reduction and Net Federal Unemployment Tax Act
(FUTA) Tax ............. 12
Tables
Table 1. State Unemployment Trust Fund Accounts: Financial Information by State, 2nd
Quarter Calendar Year 2012 ......................................................................................................... 4
Table 2. Schedule of State Tax Credit Reduction and Net Federal Unemployment Tax Act
(FUTA) Tax for July 2011 Onwards ........................................................................................... 11
Table 3. .............................. 5
Table 2.Outstanding Loan Balances, Interest Owed,
and Potential State Tax Credit Reduction .......................(February18, 2014) ............................................................ 13
Contacts
Author Contact Information... 10
Table 3.State Unemployment Trust Fund Accounts: Financial Information by State, 3rd
Quarter Calendar Year 2013 ........................................................................................................ 14 12
Congressional Research Service
The Unemployment Trust Fund (UTF): State Insolvency and Federal Loans to States
Unemployment Compensation and the
Unemployment Trust Fund, Unemployment
Taxes, and a State’s Obligation to Pay Benefits
Unemployment Compensation (UC) is a joint federal-state program financed by federal taxes
payroll
taxes under the Federal Unemployment Tax ActAct1 (FUTA) and by state payroll taxes under the State
Unemployment Tax Acts (SUTA). The underlying framework of the UC system is contained in
the Social Security Act (SSA). Title III of the SSA authorizes grants to states for the
administration of state UC laws, Title IX authorizes the various components of the federal
Unemployment Trust Fund (UTF), and Title XII authorizes advances or loans to insolvent state
UC programsState
Unemployment Tax Acts (SUTA).2 These revenues are deposited into the appropriate account
within the federal Unemployment Trust Fund (UTF).
Originally, the intent of the UC program, among other things, was to help counter economic
fluctuations such as recessions.13 This intent is reflected in the current UC program’s funding and
benefit structure. When the economy grows, UC program revenue rises through increased tax
revenues, whereas. At the same time UC program spending falls as fewer workers are unemployed. The
effect of
collecting more taxes while decreasing spending on benefits dampens demand in the
economy.
This also creates a surplus of funds or a “cushion” of available fundsreserve fund” for the UC program to draw
upon during a recession. In aThese reserve balances are credited in the state’s account within the
UTF. In an economic slowdown or recession, UC tax revenue falls and UC program spending
rises as
more workers lose their jobs and receive UC benefits. The increased amount of UC
payments to
unemployed workers dampens the economic effect of lost earnings by injecting
additional funds
into the economy.
Unemployment Taxes
UC benefits are financed through employer taxes.2 The federal taxes on employers are under the
authority of FUTA, and the state taxes are under the authority given by SUTA. These taxes are
deposited in the appropriate accounts within the UTF.
Federal Unemployment Taxes
FUTA imposes a 6.0% gross tax rate on the first $7,000 paid annually by employers to each
employee. Employers in states with programs approved by the federal government and with no
delinquent federal loans may credit 5.4 percentage points against the 6.0% tax rate, making the
minimum net federal unemployment tax rate 0.6%.
Because all states currently have approved programs, 0.6% is the effective federal tax rate.3 The
0.6% FUTA tax funds both federal and state administrative costs as well as the federal share of
the Extended Benefit (EB) program, loans to insolvent state UC accounts, and state employment
1
See, for example, President Franklin Roosevelt’s remarks at the signing of the Social Security Act at
http://www.ssa.gov/history/fdrstmts.html#signing.
2
For a detailed description of UC financing, see CRS Report RS22077, Unemployment Compensation (UC) and the
Unemployment Trust Fund (UTF): Funding UC Benefits, by Julie M. Whittaker.
3
The net FUTA tax through June 2011 was 0.8%. Thus, the average net FUTA tax rate for most employers 2011 will
be more than 0.6% but less than 0.8%.
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The Unemployment Trust Fund (UTF): State Insolvency and Federal Loans to States
services.4 In 2011, 20 states and the Virgin Islands were subject to a credit reduction: Michigan
(0.9), Indiana (0.6), Arkansas (0.3), California (0.3), Connecticut (0.3), Florida (0.3), Georgia
(0.3), Illinois (0.3), Kentucky (0.3), Minnesota (0.3), Missouri (0.3), North Carolina (0.3), New
Jersey (0.3), Nevada (0.3), New York (0.3), Ohio (0.3), Pennsylvania (0.3), Rhode Island (0.3),
Virginia (0.3), Virgin Islands (0.3), and Wisconsin (0.3).
As a result, in Michigan, the credit reduction (0.9) was applied retroactively to tax year 2011
earnings and the net FUTA tax during 2011 for Michigan employers was 1.6% on the first $7,000
of each employee’s earnings. In Indiana (with a credit reduction of 0.6), the net FUTA tax during
2011 for Indiana employers was 1.2% on the first $7,000 of each employee’s earnings. In the
other 19 states with a 0.3% credit reduction, the net FUTA tax for 2011 was 0.9%. For all other
states, the net FUTA tax was 0.6%.5
Broad Guidelines for State Unemployment Taxes
Federal laws and regulations provide broad guidelines on state unemployment taxes. States levy
their own payroll taxes on employers to fund regular UC benefits and the state share of the EB
program. These state UC tax rates are “experience-rated,” in which employers generating the
fewest claimants have the lowest rates. The state unemployment tax rate of an employer is, in
most states, based on the amount of UC paid to former employees. Generally, in most states, the
more UC benefits paid to its former employees, the higher the tax rate of the employer, up to a
maximum established by state law. The experience rating is intended to ensure an equitable
distribution of UC program taxes among employers and to encourage a stable workforce. State
ceilings on taxable wages in 2011 ranged from $7,000 (Arizona, California, Florida, and Puerto
Rico) to $38,800 (Hawaii). The minimum rates ranged from 0% (Iowa, Missouri, Nebraska,
South Dakota) to 2.98% (Pennsylvania). The maximum rates ranged from 5.4% (Arkansas,
California, Florida, Georgia, Hawaii, Mississippi, Nevada, Oregon, and Puerto Rico) to 13.5%
(Maryland). A projected $47.8 billion in SUTA taxes will be collected in FY2012. In comparison,
states are projected to spend $51.7 billion on regular UC benefits and $0.02 billion on extended
benefit payments in FY2012.
Adequate Trust Fund Balances
Whether a state trust fund balance is adequate is ultimately a matter up to each state as there is no
statutory requirement of an adequately funded state UC program.6
The U.S. Department of Labor (DOL) suggests that, to be minimally solvent, a state’s reserve
balance should provide for one year’s projected benefit payment needs on the basis of the highest
4
P.L. 111-5, as amended (most recently by P.L. 112-96), temporarily sets the share of EB paid by the federal tax to
100% rather than 50%. This temporary measure will expired on December 31, 2012.
5
Employers would have paid an additional 0.2% to any earnings paid to employees before July 2011. This temporary
surtax was most recently authorized by P.L. 111-92 and expired on June 30, 2011.
6
On September 17, 2010, funding goals for the states’ accounts were approved in federal regulations. These goals
apply only to conditions for a state’s receipt of interest-free. This rule will begin to be phased in beginning in 2014 with
the full effect of the rule beginning in 2019.These goals determine whether short-term loans to the states are interestfree loans or if they immediately begin to accrue interest. These requirements are discussed in this report in the
“Interest Charges on Loans” requirements.
Congressional Research Service
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The Unemployment Trust Fund (UTF): State Insolvency and Federal Loans to States
levels of benefit payments experienced by the state over the past 20 years. This is called the
average high-cost multiple (AHCM). A ratio of 1.0 or greater prior to a recession indicates a state
is minimally solvent. States below this level are vulnerable to exhausting their funds in a
recession.
DOL provides the AHCM in its Quarterly Program and Financial Data report in the summary of
financial data. These reports are available online at http://www.workforcesecurity.doleta.gov/
unemploy/finance.asp.
Table 1 provides recent financial information for the unemployment trust fund accounts. The first
data column lists the amount of state taxes collected in the previous 12 months. The second
column lists the balance of each state’s account in the UTF at the end of the 12-month period. The
third column calculates the ratio of the trust fund balance to the estimated sum of wages earned
by employees in jobs covered by the UC system. The fourth column lists the AHCM where a
number less than 1.0 does not meet DOL’s definition of minimally solvent. The fifth column
reports the outstanding trust fund loan (if any).
The sixth column lists the per employee loan amount (total loans divided by total covered
employees). This statistic gives a sense of how much in state taxes per employee would have to
be raised if a state were to have repaid the entire loan amount in the fourth quarter of 2011. The
final column lists the ratio of total loans to total covered wages. This ratio aids in the comparison
of the size of the loan to the general wage profile in the state.
Congressional Research Service
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Table 1. State Unemployment Trust Fund Accounts:
Financial Information by State, 2nd Quarter Calendar Year 2012
State
Revenues
Past
12 Months
($ in
thousands)
Trust Fund
Balance
($ in thousands)
Ratio of Trust
Fund
to Total Covered
Wages
Average High
Cost Multiple
(AHCM)
Outstanding
Trust Fund
Loan ($ in
thousands)
Loan per
Covered
Employee
Percentage of
Loans to Yearly
Total Wages in
Covered
Employment
Alabama
513,062
104,634
0.18
N.A.
—
—
—
Alaska
188,392
235,125
2.02
0.92
—
—
—
Arizona
428,920
10,939
0.01
N.A.
240,730
101
0.29
Arkansas
410,424
176,969
0.53
N.A.
310,373
273
0.94
California
6,201,491
57,064
0.01
N.A.
8,968,937
618
1.43
Colorado
1,451,986
526,826
0.59
N.A.
—
—
—
Connecticut
865,727
200,773
0.26
N.A.
632,026
391
0.82
Delaware
124,292
23,924
0.15
N.A.
76,412
192
0.49
District of
Columbia
144,273
305,575
1.00
0.97
—
—
—
2,181,795
31,108
0.01
N.A.
676,556
94
0.28
Georgia
839,031
370,640
0.27
N.A.
745,303
200
0.54
Hawaii
316,967
47,301
0.28
0.05
—
—
—
Idaho
327,638
224,941
1.35
N.A.
—
—
—
Illinois
3,228,323
0
0.00
N.A.
1,138,264
205
0.51
Indiana
794,141
15,935
0.02
N.A.
1,716,825
622
1.96
Iowa
652,389
573,626
1.29
0.80
—
—
—
Kansas
426,216
46,459
0.10
N.A.
—
—
—
Kentucky
509,962
200,716
0.38
N.A.
954,213
553
1.84
Louisiana
249,306
806,890
1.30
1.32
—
—
—
Maine
181,219
268,501
1.74
0.93
—
—
—
1,113,996
804,697
0.88
0.38
—
—
—
Florida
Maryland
CRS-4
State
Revenues
Past
12 Months
($ in
thousands)
Trust Fund
Balance
($ in thousands)
Ratio of Trust
Fund
to Total Covered
Wages
Average High
Cost Multiple
(AHCM)
Outstanding
Trust Fund
Loan ($ in
thousands)
Loan per
Covered
Employee
Percentage of
Loans to Yearly
Total Wages in
Covered
Employment
Massachusetts
1,935,282
491,445
0.33
0.07
—
—
—
Michigan
1,887,425
840,792
0.60
N.A.
—
—
—
Minnesota
1,340,974
101,775
0.11
N.A.
—
—
—
Mississippi
280,215
435,103
1.54
1.24
—
—
—
Missouri
686,666
31,012
0.04
N.A.
562,805
220
0.69
Montana
157,866
130,756
1.08
0.73
—
—
—
Nebraska
204,774
325,606
1.27
1.45
—
—
—
Nevada
488,984
21,438
0.05
N.A.
720,432
650
1.82
New Hampshire
216,964
148,546
0.67
0.33
—
—
—
2,950,892
32,197
0.02
N.A.
1,052,178
281
0.62
215,434
87,916
0.39
0.33
—
—
—
New York
3,259,668
27,614
0.01
N.A.
2,860,487
337
0.73
North Carolina
1,018,852
225,692
0.18
N.A.
2,567,222
673
2.05
96,954
126,827
0.96
1.05
—
—
—
1,513,099
177,794
0.11
N.A.
1,791,716
362
1.11
540,614
628,428
1.24
0.90
—
—
—
Oregon
1,041,147
1,220,131
2.31
0.85
—
—
—
Pennsylvania
3,085,610
31,356
0.02
N.A.
2,592,680
472
1.34
Puerto Rico
207,591
382,883
2.38
0.84
—
—
—
Rhode Island
255,333
1,098
0.01
N.A.
224,646
507
1.57
South Carolina
496,673
238,979
0.45
N.A.
782,188
444
1.48
South Dakota
48,102
41,621
0.41
0.69
—
—
—
770,557
561,768
0.63
0.34
—
—
—
2,796,772
1,290,263
0.30
N.A.
—
—
—
New Jersey
New Mexico
North Dakota
Ohio
Oklahoma
Tennessee
Texas
CRS-5
State
Revenues
Past
12 Months
($ in
thousands)
Trust Fund
Balance
($ in thousands)
Ratio of Trust
Fund
to Total Covered
Wages
Average High
Cost Multiple
(AHCM)
Outstanding
Trust Fund
Loan ($ in
thousands)
Loan per
Covered
Employee
Percentage of
Loans to Yearly
Total Wages in
Covered
Employment
Utah
346,235
420,847
1.13
0.88
—
—
—
Vermont
130,093
75,114
0.92
N.A.
77,732
264
0.96
2,633
2,066
0.19
N.A.
36,523
870
3.36
773,911
76,415
0.05
N.A.
—
—
—
1,450,078
2,626,165
2.37
1.13
—
—
—
233,502
140,008
0.69
0.33
—
—
—
Wisconsin
1,252,741
11,373
0.01
N.A.
926,239
347
1.14
Wyoming
134,216
188,039
2.06
1.23
—
—
—
Virgin Islands
Virginia
Washington
West Virginia
Source: Employment and Training Administration, U.S. Department of Labor, Unemployment Insurance Data Summary, 2nd Quarter 2012 Report, Washington, DC, 2012,
Table: Financial Information by State for CYQ 2012.2 and individual state reports, http://ows.doleta.gov/unemploy/content/data_stats/datasum11/DataSum_2012_2.pdf.
Notes: Total covered wages are based on extrapolated wages for the most recent 12 months. Trust Fund Balance does not include outstanding debt. States may have
obligated some portion of their UTF funds and may be borrowing to fund unemployment benefits even if the state’s UTF balance appears to be positive.
N.A. = Not Applicable: these states have outstanding debt that exceed their fund balances. Conversely, “—“ = no outstanding federal loan (states may have additional loans
financed outside of the UTF).
CRS-6
The Unemployment Trust Fund (UTF): State Insolvency and Federal Loans to States
Insolvency: Insufficient UTF Reserve Balances
During economic slowdowns or recession, some states have found that current state
unemployment taxes and UTF reserve balances were insufficient to cover state expenditures for
UC benefits.
Insolvent States Required to Pay UC Benefits
States have a great deal of autonomy in how they establish and run their unemployment system.
However, the framework established by the federal government requires states to actually pay the
UC benefits as provided under state law. If the state does not pay the UC benefits, federal law is
explicit. The state will not have a UC program meeting federal requirements and thus the federal
tax on employers would be a net tax of 6.0% with no allowable state tax rate rather than 0.6% if
the state UC program paid benefits and had no outstanding loans.
In budget terms, UC benefits are an entitlement (although the program is financed by a dedicated
tax imposed on employers and not by general revenues). Thus, even if a recession hits a given
state and as a result that state’s trust account is depleted, the state remains legally required to
continue paying benefits. To do so, the state will be forced to borrow money either from the
dedicated loan account, the FUA, within the UTF or from outside sources. Some states borrow
from sources outside the UTF and thus are not subject to the loan restrictions described below but
rather are subject to the terms within that outside loan agreement.
If the state chooses to borrow funds from the FUA, not only will the state be required to continue
paying benefits, it will also be required to repay the funds (plus any interest due) it has borrowed
from the federal loan account. Such states will probably be forced to raise taxes on their
employers or reduce UC benefit levels, actions that dampen economic growth, job creation, and
consumer demand. In short, states have strong incentives to keep adequate funds in their trust
fund accounts.
Mechanism for Receiving a Loan
For a loan to be made to a state account, the governor of the state (or the governor’s designee)
must apply to the Secretary of Labor for a three-month loan. Once the loan is approved by DOL,
the funds are placed into the state account in monthly increments.
Interest Charges on Loans
Since 1982 (P.L. 97-35), states are charged interest on new loans that are not repaid by the end of
the fiscal year in which they were obtained. Under previous law, states could receive these loans
interest-free. The interest is the same rate as that paid by the federal government on state reserves
in the UTF for the quarter ending December 31 of the preceding year, but not higher than 10%
per annum. The interest rate for calendar year loans is determined by Section 1202(b)(4) of the
SSA. The interest rate for a calendar year is the earnings yield on the UTF for the quarter ending
December 31 of the previous calendar year. The Treasury Department calculated the fourth
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The Unemployment Trust Fund (UTF): State Insolvency and Federal Loans to States
quarter earnings yield to be 2.943%. Thus, new loans made in calendar year 2012 will be subject
to a 2.943% interest rate.7
States may not pay the interest directly or indirectly from funds in their state account with the
UTF. If states do not repay the interest, or pay the interest with funds from SUTA taxes, the
Department of Labor is required by federal law to refuse to certify the state program in
compliance with federal law.8 Not being in compliance with federal unemployment law would
mean that the state would not be eligible to receive administrative grants and its state employers
would not receive the state unemployment tax credit in the calculation of their federal
unemployment taxes.
States may borrow funds without interest from the FUA during the year. To receive these interestfree loans, the states must meet three conditions:
1. The states must repay the loans by September 30.
2. For those loans to maintain their interest-free status, there cannot be any loans
made to that state in October, November, or December of the calendar year of
such an interest-free loan. If loans are made in the last quarter of the calendar
year, the “interest-free” loans made in the previous fiscal year will retroactively
accrue interest charges.
3. The states must meet funding goals relating to their account in the UTF,
established under regulations issued by DOL.
Until recently, there were no funding goals for state accounts within the UTF. On September 17,
2010, DOL issued a final rule to implement federal requirements conditioning a state’s receipt of
interest-free loans upon the state meeting funding goals, established under regulations issued by
the Secretary of Labor.9 This rule will begin to be phased in beginning in 2014 with the full effect
of the rule beginning in 2019.
By 2019, states must have had at least one year in the past five calendar years before the year in
which advances are taken where its AHCM was greater than or equal to 1.0. Additionally, states
must meet two criteria for maintenance of tax effort in every year from most recent year the
AHCM was at least 1.0 and the year in which advances are taken:
•
The average state unemployment tax rate (the ratio of total state tax amount
collected over the total taxable wages) was at least 80% of the prior year’s rate;
and,
•
The average state unemployment tax rate is at least 75% of the average benefitcost ratio over the preceding five calendar years, where the benefit-cost ratio for
a year is defined as the amount of benefits and interest paid in the year divided by
the total covered wages paid in the year.
7
Unemployment Insurance Program Letter No. 9-12, http://wdr.doleta.gov/directives/attach/UIPL/uipl_9_12_acc.pdf.
42 C.F.R. §503(c)(3) and 26 U.S.C. §3304(a)(17).
9
Employment and Training Administration, Labor, “Federal-State Unemployment Compensation Program Funding
Goals for Interest-Free Loans,” 75 Federal Register 57146, September 17, 2010.
8
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Expired Provision: Temporary Waiver of Interest in 2009 Stimulus Package
The 2009 stimulus package (the American Recovery and Reinvestment Act of 2009, P.L. 111-5
Section 2004) temporarily waived interest payments and the accrual of interest on advances to
state unemployment funds by amending Section 1202(b) of the Social Security Act. The interest
payments that were due from the time of enactment of the proposal until December 31, 2010,
were deemed to have been made by the state. No interest on advances accrued during the period.
Although interest did not accrue during this period, this did not absolve states from repaying the
underlying loans. If a state does not pay back funds within the prescribed amount of time or make
good progress as determined by the Labor Secretary, the state tax credit will be reduced, as
described below.
Since January 1, 2011, the calculation of interest has reverted to permanent law on interest
charges as described in the previous paragraphs.
Representative Peter Welch introduced H.R. 650 on February 10, 2011. The bill would extend the
interest accrual on federal loans to states through 2012. Senator Durbin introduced S. 386, the
Unemployment Insurance Solvency Act of 2011, on February 17, 2011. Among many other items,
S. 386 would extend the suspension of interest accrual on federal loans to states through 2012.
Loan Repayment
States with outstanding loans from the FUA must repay them fully by November 10 following the
second consecutive January 1 on which the state has an outstanding loan. If the outstanding loan
is not repaid by that time, the state will face an effective federal tax increase. Thus, a state may
have approximately 22 to 34 months to repay the loan without a federal tax increase, depending
on when it obtained the outstanding loan.
As of September 18, 2012, just over $25.9 billion in federal UTF loans to the states were
outstanding. A current list of states with outstanding loans may be found at DOL’s website,
http://www.workforcesecurity.doleta.gov/unemploy/budget.asp#tfloans.
Federal Tax Increases on Outstanding Loans Through
Credit Reductions
If the state does not repay a loan fully by November 10 of that second year, it becomes subject to
a reduction in the amount of credit applied against the federal unemployment tax beginning with
the preceding January 1 until the state repays the loan fully. That state’s employers must pay the
additional federal taxes resulting from the credit reduction no later than January 31 of the next
calendar year.10 The provisions of the 2009 stimulus package did not change the timetable for
federal tax increases resulting from a state’s outstanding loans.
10
Interest payments can be delayed up to nine months (and no interest on the unpaid interest would accrue) if the most
recent 12-month average unemployment rate (from September of the previous year to August of that year) is 13.5% or
higher (42 U.S.C. §1322(b)(9)). If the state’s January through June average insured unemployment rate in the previous
year is 6.5% or higher, the state would be required to pay 25% of that current year’s interest that is due. The state the
(continued...)
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In 2010, three states had a credit reduction: Michigan (0.6), Indiana (0.3), and South Carolina
(0.3). As a result, the credit reduction was applied retroactively to tax year 2010 earnings, and the
net FUTA tax during 2010 for Michigan employers was 1.4% on the first $7,000 of each
employee’s earnings. In Indiana and South Carolina the net FUTA tax during 2010 for their
employers was 1.1% on the first $7,000 of each employee’s earnings. In all other states the net
FUTA 2010 tax was 0.8%.
In 2011, 20 states and the Virgin Islands had a state tax credit reduction: Michigan (0.9), Indiana
(0.6), Arkansas (0.3), California (0.3), Connecticut (0.3), Florida (0.3), Georgia (0.3), Illinois
(0.3), Kentucky (0.3), Minnesota (0.3), Missouri (0.3), North Carolina (0.3), New Jersey (0.3),
Nevada (0.3), New York (0.3), Ohio (0.3), Pennsylvania (0.3), Rhode Island (0.3), Virginia (0.3),
Virgin Islands (0.3), and Wisconsin (0.3). As a result, in Michigan, a credit reduction of 0.9 was
applied retroactively to tax year 2011 earnings and the net FUTA tax during 2011 for Michigan
employers was 1.5% on the first $7,000 of each employee’s earnings. In Indiana (with a credit
reduction of 0.6) the net FUTA tax during 2011 for its employers was 1.2% on the first $7,000 of
each employee’s earnings. In the other 19 states with a credit reduction, the net FUTA tax for
2011 was 0.9%. For all states not subject to the credit reduction, the net FUTA tax was 0.6%.
The additional federal taxes attributable to the credit reduction are then deposited into the
appropriate state account. Thus the amount of the loan (or the funds the state must continue to
borrow) is reduced by the additional federal taxes paid by the state employers.
If any January 1 passes without an outstanding balance, the year count starts over with the next
loan. The U.S. DOL maintains a list of potential reduced credit states at http://ows.doleta.gov/
unemploy/docs/reduced_credit_states.xls.
into the economy.
State and Federal Unemployment Taxes
State Unemployment Taxes (SUTA)
States levy their own payroll taxes (SUTA) on employers to fund regular UC benefits and the
state share (50%) of the Extended Benefit (EB) program.4 Federal laws and regulations provide
broad guidelines for these state taxes. Each states deposit its SUTA revenue into its account
within the UTF.
UC benefits are financed by SUTA revenue. Generally, when economic activity is increasing and
robust, SUTA revenues are greater than states’ UC expenditures and the states’ reserves within the
UTF grow. This trend is reversed during economic recessions and the early economic recovery
period where the state’s reserves are drawn down and new SUTA revenues do not always make
up a shortfall.
1
Sections 3301-3311 of the Internal Revenue Code of 1986 (26 U.S.C. §§3301-33011).
The underlying framework of the UC program is contained in the Social Security Act (SSA). Title III of the SSA
authorizes grants to states for the administration of state UC laws, Title IX authorizes the various components of the
federal Unemployment Trust Fund (UTF), and Title XII authorizes advances or loans to insolvent state UC programs.
3
See, for example, President Franklin Roosevelt’s remarks at the signing of the Social Security Act at
http://www.ssa.gov/history/fdrstmts.html#signing.
4
The Extended Benefit (EB) program was established by the Federal-State Extended Unemployment Compensation
Act of 1970 (EUCA), P.L. 91-373 (26 U.S.C. 3304, note). EUCA may extend receipt of unemployment benefits by 13
or 20 weeks at the state level if certain economic situations exist within the state. For details, see CRS Report
RL33362, Unemployment Insurance: Programs and Benefits, by Julie M. Whittaker and Katelin P. Isaacs.
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If the recession is deep enough and if SUTA revenue is inadequate for long periods of time, states
may have insufficient funds to pay for UC benefits. States are required by federal law to pay these
benefits. Federal law provides a loan mechanism within the UTF framework that an insolvent
state may opt to use in order to meet its UC benefit payment obligations.5 States must pay back
these loans. If they are not paid back quickly (depending on the timing of the beginning of the
loan period), states may face interest charges and the states’ employers may face increased net
FUTA rates until the loans are repaid.
In the years immediately following the most recent recession, many states had insufficient SUTA
revenue and UTF account balances to pay UC benefits.
Federal Unemployment Taxes (FUTA)
All FUTA revenue is deposited into the Employment Security Administration Account (ESAA)
within the UTF. Federal unemployment taxes pay for the federal share of EB (50%) and
administrative grants to the states. Additionally, through the federal loan account within the UTF,
FUTA funds may be loaned to insolvent states to assist the payment of the states’ UC obligations.
Net FUTA Rate Is 0.6%
FUTA imposes a 6.0% gross federal unemployment tax rate on the first $7,000 paid annually by
employers to each employee. Employers in states with programs approved by the U.S. Labor
Secretary and with no outstanding federal loans may credit up to 5.4 percentage points of state
unemployment taxes paid against the 6.0% tax rate, making the minimum net federal
unemployment tax rate 0.6%.6
Since most employees earn more than the $7,000 taxable wage ceiling in a calendar year, the
FUTA tax typically is $42 per worker per year ($7,000 x 0.6%), or just over two cents per hour
for a full-time year-round worker.7
States Required to Pay UC Benefits
States have a great deal of autonomy in how they establish and run their unemployment insurance
programs. However, the framework established by federal laws is clear and requires states to
promptly pay the UC benefits as provided under state law.8
5
Federal unemployment compensation law does not restrict the states from using loan resources outside of the UTF.
Depending on state law, states may have other funding measures available and may be able to use funds from outside
of the UTF to pay the benefits (such as issuing bonds).
6
Section 3304 of FUTA (26 U.S.C. §3304) allows up to 5.4% credit for actual state unemployment taxes paid.
Additionally, under Section 3303 of FUTA (26 U.S.C. §3303), employers that paid less than a 5.4% rate in state
unemployment taxes are eligible for an additional state tax credit of up to 5.4%. The total state tax credit (actual and
additional) on federal unemployment tax calculation is restricted to be no more than 5.4%. Thus, all employers in states
with approved UC programs receive a 5.4% credit in the calculation of FUTA, even if the employer paid less than a
5.4% rate in state unemployment taxes.
7
Assuming a full-time year-round worker works 52 weeks/year and 40 hours/week (for 2080 hours/year),
42/2080=$0.0202.
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In budgetary terms, UC benefits are an entitlement (although the program is financed by a
dedicated tax imposed on employers and not by general revenues). Thus, even if a recession hits a
given state and as a result that state’s trust account is depleted, the state remains legally required
to continue paying benefits. To do so, the state might borrow money either from the dedicated
loan account9 within the UTF or from outside sources.
If the state chooses to borrow funds from the UTF, not only will the state be required to continue
paying benefits, it will also be required to repay the funds (plus any interest due) it has borrowed
from the federal loan account within a few years. Such states may need to raise taxes on their
employers or reduce UC benefit levels, actions that dampen economic growth, job creation, and
consumer demand. In short, states have strong incentives to keep adequate funds in their trust
fund accounts.
If the state borrows from sources outside the UTF, the state would not be subject to the loan
restrictions described below; instead, they would be subject to the terms within that outside loan
agreement which might offer a different (more favorable) interest rate or repayment schedule but
may include fees to establish the loan.
Funds Available for Loans to States Within the UTF
The Federal Unemployment Account (FUA) is the federal loan account within the UTF. There are
two automatic funding sources available within the FUA. Additionally, the FUA may borrow
funds from other federal accounts within the UTF or (if needed) from the General Fund of the
U.S. Treasury. Since FY2009, the FUA has had to borrow funds from the U.S. Treasury in order
to finance loans to the state accounts.
1. Excess revenue from Extended Unemployment Compensation Account (EUCA)
is deposited into the FUA.10 In FY2013, the EUCA net balance was an estimated
shortfall of (negative) $18.8 billion. Thus, no EUCA funds were distributed to the
FUA in FY2013.
2. Revenue from additional FUTA taxes paid by employers when a reduced credit
against federal unemployment taxes exists because the state has an outstanding
unpaid loan from FUA is deposited into the FUA. (See the discussion below on
“Federal Tax Increases on Outstanding Loans Through Credit Reductions” for a
more detailed explanation of these additional taxes.)
(...continued)
8
Section 3304 of FUTA (26 U.S.C. §3304). If the state does not pay the UC benefits, federal law is explicit. The state
will not have a UC program meeting federal requirements and thus the federal unemployment tax paid by employers on
each employee’s annual earnings would be a net tax of 6.0% (with no allowable state tax credit) rather than 0.6% if the
state UC program paid benefits and had no outstanding loans.
9
The Federal Unemployment Account (FUA).
10
Following federal law, at the end of every month 20% of all newly collected FUTA revenue is deposited into EUCA
which is authorized to pay for the federal share of EB. The EUCA balance is limited to the maximum of 0.5% of
covered wages ($25.11 billion in FY2013). If the EUCA balance exceeds the limitation, the excess is distributed to the
FUA.
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The Unemployment Trust Fund (UTF): State Insolvency and Federal Loans to States
3. Federal law allows the FUA to borrow available funds from the other federal
(EUCA and ESAA) accounts within the UTF.11
4. Federal law also authorizes appropriations as loans from the general fund of the
U.S. Treasury if balances in the federal accounts are insufficient to cover their
expenditures.12 (For example, if the states’ borrowing needs exceed the available
FUA balance.) Such appropriations require discretionary action by Congress and
the President.13
Mechanism for Receiving a Loan from the UTF
Once a state recognizes that it does not have sufficient funds to pay UC benefits, the mechanism
for receiving a loan from the UTF is straightforward. The state’s governor (or the governor’s
designee) must submit a letter requesting that the U.S. Labor Secretary advance funds to the state
account within the UTF. Once the loan is approved by the U.S. Labor Secretary, the funds are
placed into the state account in monthly increments.
Loan Repayment
States with outstanding loans from the UTF must repay them fully by the November 10 following
the second consecutive January 1 on which the state has an outstanding loan. If the outstanding
loan is not repaid by that time, the state will face an effective federal tax increase. Thus, a state
may have approximately 22 (if borrowing began on January 1) to 34 months (if borrowing began
on January 2) to repay the loan without a federal tax increase, depending on when it obtained the
outstanding loan.
As of February 18, 2014, approximately $21.2 billion in federal UTF loans to the states were
outstanding. A current list of states with outstanding loans may be found at DOL’s website,
http://www.workforcesecurity.doleta.gov/unemploy/budget.asp#tfloans.
Federal Tax Increases on Outstanding Loans Through
Credit Reductions
If the state does not repay a loan by the November 10 of the second year14, it becomes subject to a
reduction in the amount of state unemployment tax credit applied against the federal
unemployment tax beginning with the preceding January 1st until the state repays the loan fully.
11
42 U.S.C. 1110.
42 U.S.C. 1323.
13
At the end of FY2013, the FUA owed $8.42 billion to the general fund of the U.S. Treasury, and owed an additional
$0.4 billion to the other federal accounts within the UTF. The FUA also had $19.96 billion in promissory notes
(outstanding loans) that states are required to repay.
14
The “second year” is the year when the state has outstanding UTF loans on January 1 for the second January 1 in a
row. Depending on the timing when the first loan began, it may actually be the third year of the loan.
12
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Depending on the duration of the loan and certain other measures, one or more of three different
credit reductions may be required. These reductions are fully catalogued in Table 1. At the height
of the period following the most recent recession (2011), 20 states and the Virgin Islands faced
increased FUTA rates because of outstanding UTF loans.15
Basic Credit Reduction
The credit reduction is initially 0.3 percentage points for the year beginning with the calendar
year in which the second consecutive January 1 passes during which the loan is outstanding and
increases by 0.3 percentage points for each year there is an outstanding loan. For example, in the
first year, the credit reduction results in the net federal tax rate increasing from 0.6% to 0.9%—an
additional $21 for each employee; in the second year, it would increase to 1.2%—a cumulative
additional $42 for each employee.11
Additional Credit Reductions: 2.7 Add-on and BCR Add-on
There are two potential additional credit reductions (in addition to the cumulative 0.3 percentage
point increases) during the ensuing calendar years in which a state has an outstanding loan: (1) in
the calendar years after which the third and fourth consecutive January 1s pass and (2) in the
calendar years after which the fifth or more consecutive January 1s pass. The first additional
credit reduction (referred to as the “2.7 add-on”)
1. Beginning in the third year, the 2.7 add-on uses a statutory formula that takes into
consideration the average annual wages and average employment contribution rate. The second
(...continued)
would pay the remaining 25% in each of the next three years. The (75%) remainder of the interest payment would be
not be subject to additional interest calculations (42 U.S.C. §1322(b)(3)(C)).
11
For 2011 this calculation will be slightly different. For the first $7,000 on wages earned through June 2011, the net
FUTA tax is 0.8%; for any remaining portion of the first $7,000 of wages earned in 2011 after June, the FUTA tax is
0.6%. Any state tax credit reduction (for example, in the first year) would follow the same pattern of an increase net
FUTA tax of 0.3%.
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The Unemployment Trust Fund (UTF): State Insolvency and Federal Loans to States
additional credit reduction (referred to as the Benefit Cost Ratio, or BCR, add-on) replaces the 2.7
rate.16 In 2012, the Virgin Islands was subject to this 2.7 add-on.
2. Beginning in in the fifth year, the Benefit Cost Ratio (BCR) add-on replaces the
2.7 add-on and uses the five-year benefit cost rate as well as average wages in its
calculation.12 Table
2 17
Table 1 presents these reductions and the subsequent net FUTA tax faced by state employers as a result
result of these unpaid loans.
Table 2. If any January 1 passes without an outstanding balance, the year
count starts over with the next loan. The U.S. DOL maintains a list of potential reduced credit
states at http://ows.doleta.gov/unemploy/docs/reduced_credit_states.xls.
Table 1.Schedule of State Tax Credit Reduction and Net Federal Unemployment
Tax Tax
Act (FUTA) Tax for July 2011 Onwards
Loan Year
Credit Reduction
Additional Reductions
Net FUTA Tax
(0.6% + credit
reductions)
Year 1 of outstanding loan
0.0%
None
0.6%
Year 2 (applied retroactively
at end of calendar year)
0.3%
None
0.9%
15
See http://ows.doleta.gov/unemploy/docs/reduced_credit_states.xlsx.
The 2.7 add-on formula is [(2.7% x 7000/ U.S. Annual Average Wage)-Average Annual State Tax Rate on Total
Wages] x State Annual Average Wage/7000.
17
The BCR add-on formula is: Max [Five-year Average State Unemployment UC Outlays/Taxable Wages, 2.7] Average Annual State Unemployment Tax Rate on Total Wages.
16
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Loan Year
Credit Reduction
Additional Reductions
Net FUTA Tax
(0.6% + credit
reductions)
Year 3
0.6%
2.7 Add-on
1.2% or moreaYear 3
0.6%
2.7 Add-on
1.2% or more
Year 4
0.9%
2.7 Add-on
1.5% or moremorea
Year 5
1.2%
BCR Add-on
1.8% or moremoreb
Year 6
1.5%
BCR Add-on
2.1% or moremoreb
Year 7
1.8%
BCR Add-on
2.4% or moremoreb
Year 8
2.1%
BCR Add-on
2.7% or moremoreb
Year 9
2.4%
BCR Add-on
3.0% or moremoreb
Year 10
2.7%
BCR Add-on
3.3% or moremoreb
Year 11
3.0%
BCR Add-on
3.6% or moremoreb
Year 12
3.3%
BCR Add-on
3.9% or moremoreb
Year 13
3.6%
BCR Add-on
4.2% or moremoreb
Year 14
3.9%
BCR Add-on
4.5% or moremoreb
Year 15
4.2%
BCR Add-on
4.8% or moremoreb
Year 16
4.5%
BCR Add-on
5.1% or moremoreb
Year 17
4.8%
BCR Add-on
5.4% or moremoreb
Year 18
5.1%
BCR Add-on
5.7% or moremoreb
Year 19
5.4%
BCR Add-on
6.0%
Source: U.S. Department of Labor, Employment and Training Administration.
Notes: 2.7 Add-on = [(2.7% x 7000/ U.S. Annual Average Wage) - Average Annual State Tax Rate on Total
Wages] x State Annual Average Wage/7000.
Benefit Cost Ratio (BCR) Add-on = Max [five-year State Average CostFive-year Average State Unemployment Compensation Outlays
/Taxable Wages, 2.7] - Average Annual
State Tax Rate on Total Wages.
How the Credit Reduction May be Mitigated: Avoidance or Cap
Section 272 of P.L. 97-248 allows a delinquent state the option of repaying—on or before
November 9—a portion of its outstanding loans each year through transfer of a specified amount
12
The 2.7 add-on formula is [(2.7% x 7000/ U.S. Annual Average Wage)-Average Annual State Tax Rate on Total
Wages] x State Annual Average Wage/7000. The BCR add-on formula is: Max [five-year State Average Cost/Taxable
Wages, 2.7] - Average Annual State Tax Rate on Total Wages.
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from its account in the UTF to the FUA. If the state complies with all the requirements listed
below, the potential credit reduction is avoided (there is no reduction). The state also must repay
all loans for the most recent one-year period ending on November 9, plus the potential additional
taxes that would have been imposed for the tax year based upon a state tax credit reduction.
•
In addition, the state must have sufficient amounts in the state account of the
UTF to pay all compensation for the last quarter of that calendar year without
receiving a loan.
•
Finally, the state must also have altered its state law to increase the net solvency
of its account with the UTF.
In FY2011, South Carolina was the only state with outstanding advances to meet these
requirements. As a result, employers in South Carolina were not subject to a state tax credit
reduction in the calculation of their FUTA taxes. (Employers in South Carolina would have
generally paid more in state unemployment taxes to State Unemployment Tax Rate on Total Wages.
a.
Exact tax depends upon 2.7 Add-on calculation.
b.
Exact net tax depends upon BCR Add-on calculation (or the 2.7 Add-on calculation, if the BCR Add-on is
waived).
Avoiding Some or All of the Credit Reduction
Section 272 of P.L. 97-248 allows a delinquent state the option of repaying—on or before
November 9—a portion of its outstanding loans each year through transfer of a specified amount
from its account in the UTF to the FUA.
If the state complies with all the requirements listed below, the potential credit reduction is
avoided (there is no reduction):
6
The state also must repay all loans for the most recent one-year period ending on
November 9, plus the potential additional taxes that would have been imposed
for the tax year based upon a state tax credit reduction.
The state must have sufficient amounts in the state account of the UTF to pay all
compensation for the last quarter of that calendar year without receiving a loan.
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The Unemployment Trust Fund (UTF): State Insolvency and Federal Loans to States
The state must also have altered its state law to increase the net solvency of its
account with the UTF.
In 2011, 2012, and 2013 South Carolina met these requirements. As a result, employers in South
Carolina were not subject to a state tax credit reduction in the calculation of their FUTA taxes.
(Generally, employers in South Carolina would have paid more in state unemployment taxes to
meet these requirements.)
Cap
Once a state begins to have a credit reduction, the state may apply to have the reductions capped
if the state meets four criteria:
•
No legislative or other action in 12 months ending September 30 has been taken
to decrease state unemployment tax effort.
• (A state cannot actively decrease its
expected state unemployment tax revenue from current law.)
No legislative or other action has been taken to decrease the state trust account’s
net solvency.
• (For example, the state would not be allowed to actively increase
the average UC benefit amount from current law requirements.)
Average state unemployment tax rate on total wages must exceed the five-year
average benefit cost rate on total wages.
•
Balance of outstanding loans as of September 30 must not be greater than the
balance three years before.
Waiving the BCR Add-on
The BCR add-on may be waived if the Secretary of Labor determines that the state did not take
legislative or other actions to decrease the state trust account’s net solvency. The 2.7 add-on
would then replace the BCR add-on.
Current Status of Outstanding Loans, Accrued Interest Owed, and
State Tax Credit Reductions
Table 3 lists all states that have outstanding loans. The table also includes information on accrued
interest payments for FY2012. The third column provides information on whether a state was
subject to a credit reduction for 2011. The last column provides the net FUTA tax faced by
employers in each state that had an outstanding loan. This table was created on December 30,
2011, and may change based upon state actions in the following weeks. If a state is not listed on
this table, the state did not have outstanding loans on December 28, 2011, did not have
outstanding interest accruals, and was not subject to a state tax credit reduction on the calculation
of the net FUTA tax.
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Table 3. Outstanding Loan Balances, Interest Owed,
and Potential State Tax Credit Reduction
State
Outstanding Balance
January 9, 2012
Accrued FY2012
Interest
2011 State Tax
Credit Reduction
2011 Net
FUTA Taxa
Alabama
$41,171,959.18
$301,264.18
N.A.b
0.6
Arizona
375,494,654.70
3,762,253.61
N.A.
0.6
Arkansas
330,853,382.53
3,647,631.74
0.3
0.9
California
9,989,135,462.02
103,208,378.26
0.3
0.9
Colorado
353,527,081.05
4,107,288.26c
N.A.
0.6
Connecticut
709,875,582.98
8,811,655.92
0.3
0.9
62,523,367.88
689,315.07
N.A.
0.6
1,792,100,000.00
18,956,417.80
0.3
0.9
721,080,472.00
7,949,853.80
0.3
0.9
Illinois
2,185,410,158.28
22,095,629.00
0.3
0.9
Indiana
1,994,007,775.40
21,164,706.91
0.6
1.2
Kansas
70,976,936.12
541,659.71
N.A.
0.6
Kentucky
948,700,000.00
6,048,353.63
0.3
0.9
Michigan
26,124,483.61
31,634,097.32
0.9
1.5
Minnesota
202,787,883.60
1,909,248.21
0.3
0.9
Missouri
739,476,912.89
8,002,565.35
0.3
0.9
780,799,054.49
30,711,423.52c
0.3
0.9
New Jersey
1,513,819,882.72
15,288,754.70
0.3
0.9
New York
3,516,408,575.89
35,264,826.86
0.3
0.9
North Carolina
2,702,990,739.25
16,302,399.67
0.3
0.9
Ohio
2,095,695,131.00
10,529,287.30
0.3
0.9
Pennsylvania
3,347,251,595.03
34,396,333.98
0.3
0.9
Rhode Island
237,983,447.28
2,400,748.62
0.3
0.9
South Carolina
782,456,436.93
8,920,201.67
N.A.
0.6
77,731,860.63
856,987.47
N.A.
0.6
288,253,000.00
2,687,021.89
0.3
0.9
30,799,690.81
317,112.57
0.3
0.9
1,268,412,281.85
13,092,878.76
0.3
0.9
$37,185,847,808.12
$413,598,295.78c
21
Delaware
Florida
Georgia
Nevada
Vermont
Virginia
Virgin Islands
Wisconsin
Totals
—
Source: Congressional Research Service table prepared using data from the U.S. Bureau of Public Debt,
http://www.treasurydirect.gov/govt/reports/tfmp/tfmp_advactivitiessched.htm, and the U.S. Department of Labor
http://ows.doleta.gov/unemploy/content/reduced_credit_states.xls.
a.
b.
c.
These net rates uses a net FUTA rate of 0.6% that was effective beginning in July 2011 for states that did
not have outstanding loans on two consecutive January 1s. For earnings before July 2011, the underlying net
FUTA rate was 0.8%.
N.A. = not applicable because the state has not had outstanding balance on two consecutive January 1s.
Includes deferred interest from FY2011.
Congressional Research Service
13
The Unemployment Trust Fund (UTF): State Insolvency and Federal Loans to States
Author Contact Information
Julie M. Whittaker
Specialist in Income Security
jwhittaker@crs.loc.gov, 7-2587
Congressional Research Service
14Revenue from Credit Reductions Reduce State UTF Loans
The additional federal taxes attributable to the credit reduction are applied against the state’s
outstanding UTF loan. Thus, while technically employers are paying additional FUTA taxes, the
additional tax pays off a state’s debt. The state’s employers will pay the additional federal taxes
resulting from the credit reduction no later than January 31 of the next calendar year.
Interest Charges on Loans
Since 1982 (P.L. 97-35), states are charged interest on new loans that are not repaid by the end of
the fiscal year in which they were obtained.18 Under previous law, states could receive these loans
18
The American Recovery and Reinvestment Act of 2009, P.L. 111-5 Section 2004, temporarily waived interest
payments and the accrual of interest on loans. The interest payments that were due from the time of enactment
(continued...)
Congressional Research Service
7
The Unemployment Trust Fund (UTF): State Insolvency and Federal Loans to States
interest-free.19 The interest is the same rate as that paid by the federal government on state
reserves in the UTF for the quarter ending December 31 of the preceding year, but not higher than
10% per annum. The interest rate for calendar year loans is determined by Section 1202(b)(4) of
the SSA. The interest rate for a calendar year is the earnings yield on the UTF for the quarter
ending December 31st of the previous calendar year. The U.S. Treasury Department calculated the
fourth quarter earnings yield in 2013 to be 2.3874%. Thus, new loans made in calendar year 2014
will be subject to an interest rate of 2.3874%.20
States may not pay the interest directly or indirectly from SUTA revenue or funds in their state
account with the UTF. If states do not repay the interest, or pay the interest with funds from
SUTA taxes, the U.S. Department of Labor is required by federal law to refuse to certify the state
program as being in compliance with federal law.21 Not being in compliance with federal
unemployment law would mean that the state would not be eligible to receive administrative
grants and its state employers would not receive the state unemployment tax credit in the
calculation of their federal unemployment taxes.
States may borrow funds without interest from the UTF during the year. To receive these interestfree loans, the states must meet five conditions:
1. The states must repay the loans by September 30.
2. For those repaid (by September 30) loans to maintain their interest-free status
there cannot be any loans made to that state in October, November, or December
of the calendar year of such an interest-free loan. If loans are made in the last
quarter of the calendar year, the “interest-free” loans made in the previous fiscal
year will retroactively accrue interest charges.
3. The states must meet funding goals relating to their account in the UTF,
established under regulations issued by DOL.
(...continued)
(February 17, 2009) until December 31, 2010, were deemed to have been made. No interest on advances accrued
during the period. Although interest did not accrue during this period, this did not absolve states from repaying the
underlying loans. If a state did not pay back funds within the prescribed amount of time or make good progress as
determined by the Labor Secretary, the state tax credit was reduced. Beginning on January 1, 2011, the calculation of
interest reverted to permanent law on interest charges.
19
Interest payments can be delayed up to nine months (and no interest on the unpaid interest would accrue) if the most
recent 12-month average unemployment rate (from September of the previous year to August of that year) is 13.5% or
higher (42 U.S.C. §1322(b)(9)). If the state’s January through June average insured unemployment rate (IUR) in the
previous year is 6.5% or higher, the state would be required to pay 25% of that current year’s interest that is due. (The
IUR is the ratio of UC claimants divided by individuals in UC-covered jobs. It excludes unemployed workers who have
exhausted their UC benefits, as well as the self-employed.) The state then would pay the remaining 25% in each of the
next three years. The (75%) remainder of the interest payment would be not be subject to additional interest
calculations (42 U.S.C. §1322(b)(3)(C)). The provisions of P.L. 111-5 did not change the timetable for federal tax
increases resulting from a state’s outstanding loans.
20
Employment and Training Administration, U.S. Department of Labor, Interest Rate on Title XII Advances During
Calendar Year (CY) 2014, Unemployment Insurance Program Letter (UIPL) 8-14, Washington, DC, February 18,
2014, http://wdr.doleta.gov/directives/attach/UIPL/UIPL_8-14.pdf.
http://wdr.doleta.gov/directives/attach/UIPL/uipl_9_12_acc.pdf.
21
42 C.F.R. §503(c)(3) and 26 U.S.C. §3304(a)(17).
8
Congressional Research Service
The Unemployment Trust Fund (UTF): State Insolvency and Federal Loans to States
In addition to these first three requirements, the phase-in of two new requirements began in 2014;
the full effect of the requirements begins in 2019.22
4. States must have had at least one year in the past five calendar years before the
year in which advances are taken where its Average High Cost Multiple23
(AHCM) was greater than or equal to 1.0.
5. Additionally, states must meet two criteria for maintenance of tax effort in every
year from most recent year the AHCM was at least 1.0 and the year in which
loans are taken.
a. The average state unemployment tax rate (total state unemployment tax
amount collected over total taxable wages) was at least 80% of the prior
year’s rate.
b. The average state unemployment tax rate is at least 75% of the average
benefit-cost ratio over the preceding five calendar years, where the benefitcost ratio for a year is defined as the amount of benefits and interest paid in
the year divided by the total covered wages paid in the year.
Status of Outstanding Loans, Accrued Interest
Owed, and State Tax Credit Reductions
Table 2 lists all states that have outstanding loans. The table also includes information on accrued
interest payments for FY2013. The third column provides information on whether a state was
subject to a credit reduction for tax year 2013. The last column provides the net FUTA tax faced
by employers in each state that had an outstanding loan. If a state is not listed on this table, the
state did not have any outstanding loans on February 18, 2014, did not have outstanding interest
accruals, and was not subject to a state tax credit reduction on the calculation of the net FUTA tax
in 2013.
22
Employment and Training Administration, U.S. Department of Labor, “Federal-State Unemployment Compensation
Program Funding Goals for Interest-Free Loans,” 75 Federal Register 57146, September 17, 2010.
23
The average high-cost multiple (AHCM) is the ratio of actual UTF account balances to the average of the three
highest years of benefit payments experienced by the state over the past 20 years. Presumably, the average of the three
highest years’ outlays would be a good indicator of potential expected UC payments if another recession were to occur.
Under these assumptions, if a state had saved enough funds to pay for an average high-year of UC benefit activity, its
AHCM would be at least 1.0.
Congressional Research Service
9
The Unemployment Trust Fund (UTF): State Insolvency and Federal Loans to States
Table 2.Outstanding Loan Balances, Interest Owed,
and Potential State Tax Credit Reduction
(February18, 2014)
Outstanding
Advance
Balance
Interest for
FY2014
2013 Tax Credit
Reduction
2013 Net FUTA
Tax
(0.6% + credit
reductions)
Arkansas
$117,171,234
$1,283,070
0.9
1.5%
California
10,001,840,413
93,035,423
0.9
1.5
Connecticut
573,439,549
5,563,804
0.9
1.5
Delaware
71,429,695
693,009
0.6
1.2
Georgia
178,330,019
2,323,617
0.9
1.5
Indiana
1,402,848,658
13,280,588
1.2
1.8
Kentucky
660,492,548
6,162,322
0.9
1.5
Missouri
321,450,890
3,120,669
0.9
1.5
Nevada
0
1,424,741
a
0.6
New Jersey
157,217,265
1,084,994
a
0.6
New York
3,180,267,258
28,852,558
0.9
1.5
North Carolina
1,762,752,993
18,407,204
0.9
1.5
Ohio
1,619,600,290
15,162,030
0.9
1.5
Pennsylvania
67,412,194
46,446
a
0.6
Rhode Island
112,269,970
1,157,282
0.9
1.5
South Carolina
456,512,367
4,475,533
b
0.6
Virgin Islands
86,306,176
788,420
1.2
1.8
Wisconsin
432,418,197
3,702,389
0.9
1.5
$21,201,759,715
$200,564,100
State
Totals
Source: Congressional Research Service table prepared using data from the U.S. Bureau of Public Debt,
http://www.treasurydirect.gov/govt/reports/tfmp/tfmp_advactivitiessched.htm, and the U.S. Department of Labor
http://ows.doleta.gov/unemploy/content/reduced_credit_states.xls.
10
a.
Not applicable. State has not had two consecutive January 1s with an outstanding loan balance.
b.
Qualified for avoidance.
Congressional Research Service
The Unemployment Trust Fund (UTF): State Insolvency and Federal Loans to States
Table 3 provides financial information for the unemployment trust fund accounts. The first data
column lists the amount of state taxes collected in the previous 12 months. The second column
lists the balance of each state’s account in the UTF at the end of the 12-month period. The third
column calculates the ratio of the trust fund balance to the estimated sum of wages earned by
employees in jobs covered by the UC system. The fourth column lists the AHCM where a number
less than 1.0 does not meet DOL’s definition of minimally solvent. The fifth column reports the
outstanding trust fund loan (if any).
The sixth column lists the per employee loan amount (total loans divided by total covered
employees). This statistic gives a sense of how much in state taxes per employee would have to
be raised if a state were to repay the entire loan amount within one year. The final column lists the
ratio of total loans to total covered wages. This ratio aids in the comparison of the size of the loan
to the general wage profile in the state.
Congressional Research Service
11
CRS-12
Table 3.State Unemployment Trust Fund Accounts:
Financial Information by State, 3rd Quarter Calendar Year 2013
Revenues
Past
12 Months
($ in
thousands)
Average High
Cost Multiple
(AHCM)
Outstanding
Trust Fund
Loan
($ in
thousands)
Loan per
Covered
Employee
Percentage of
Loans to Yearly
Total Wages in
Covered
Employment
Alabama
0.41
0.16
$0
—
—
329,345
2.67
1.02
0
—
—
444,466
61,270
0.07
N.A.
0
—
—
Arkansas
371,430
157,336
0.45
N.A.
157,662
$140
0.46
California
6,729,503
31,958
0
N.A.
9,189,069
620
1.36
Colorado
743,263
579,175
0.6
N.A.
0
0
—
Connecticut
858,487
225,661
0.28
N.A.
573,722
360
0.73
Delaware
136,584
37,339
0.23
N.A.
71,465
181
0.44
District of
Columbia
160,063
313,954
0.97
0.92
0
—
—
Florida
2,145,175
783,933
0.3
N.A.
0
—
—
Georgia
897,516
221,118
0.15
N.A.
296,330
79
0.20
Hawaii
392,173
261,504
1.43
0.3
0
—
—
Idaho
302,678
406,392
2.35
N.A.
0
—
—
Illinois
3,047,878
1,177,936
0.49
N.A.
0
—
—
Indiana
767,271
7,720
0.01
N.A.
1,352,126
492
1.47
Iowa
565,842
828,923
1.77
1.07
0
—
—
Kansas
413,460
106,300
0.22
0.08
0
—
—
Kentucky
527,773
27
0
N.A.
612,559
357
1.13
Louisiana
251,873
832,749
1.26
1.2
0
—
—
Maine
177,531
297,186
1.87
0.93
0
—
—
Maryland
890,413
954,663
0.98
0.67
0
—
—
Trust Fund
Balance
($ in thousands)
Ratio of Trust
Fund
to Total Covered
Wages
$433,519
$247,503
Alaska
234,363
Arizona
State
Revenues
Past
12 Months
($ in
thousands)
Average High
Cost Multiple
(AHCM)
Outstanding
Trust Fund
Loan
($ in
thousands)
Loan per
Covered
Employee
Percentage of
Loans to Yearly
Total Wages in
Covered
Employment
Massachusetts
0.49
0.13
0
—
—
1,538,513
1.05
N.A.
0
—
—
1,425,184
990,480
0.96
0.32
0
—
—
Mississippi
237,308
514,457
1.73
1.5
0
—
—
Missouri
648,070
75,958
0.09
N.A.
322,163
127
0.38
Montana
159,806
199,139
1.55
0.91
0
—
—
Nebraska
142,849
364,493
1.32
1.65
0
—
—
Nevada
544,201
12,323
0.03
N.A.
520,153
465
1.26
New Hampshire
174,433
239,926
1.03
0.75
0
—
—
New Jersey
2,998,348
33,039
0.02
N.A.
105,057
28
0.06
New Mexico
215,857
63,699
0.27
0.2
0
—
—.
New York
3,187,090
23,521
0.01
N.A.
2,799,213
333
0.68
North Carolina
1,278,257
222,849
0.17
N.A.
2,002,781
522
1.52
North Dakota
104,589
154,236
0.97
1.13
0
—
—
1,228,081
162,090
0.09
N.A.
1,553,203
317
0.91
561,747
1,027,713
1.91
1.45
0
—
—
Oregon
1,066,294
1,738,304
3.14
1.03
0
—
—
Pennsylvania
3,090,442
521,632
0.25
N.A.
0
—
—
Puerto Rico
201,846
388,379
2.32
0.82
0
—
—
Rhode Island
273,489
33,067
0.21
N.A.
162,967
377
1.08
South Carolina
424,164
241,161
0.43
N.A.
531,529
300
0.96
South Dakota
43,590
62,981
0.59
0.91
0
—
—
Tennessee
642,704
807,881
0.83
0.57
0
—
—
2,636,812
1,663,034
0.35
N.A.
0
—
—
Trust Fund
Balance
($ in thousands)
Ratio of Trust
Fund
to Total Covered
Wages
1,877,861
781,444
Michigan
1,781,552
Minnesota
State
Ohio
Oklahoma
Texas
CRS-13
CRS-14
Revenues
Past
12 Months
($ in
thousands)
Average High
Cost Multiple
(AHCM)
Outstanding
Trust Fund
Loan
($ in
thousands)
Loan per
Covered
Employee
Percentage of
Loans to Yearly
Total Wages in
Covered
Employment
Utah
1.54
1.12
0
—
—
Vermont
79,457
0.93
0.14
0
—
—
6,417
9,907
1.04
N.A.
76,406
1,959
7.55
793,765
267,652
0.18
0.04
0
—
—
1,346,610
2,975,107
2.5
1.1
0
—
—
216,834
122,391
0.61
0.33
0
—
—
Wisconsin
1,208,297
5,629
0.01
N.A.
409,207
156
0.48
Wyoming
137,530
277,512
2.93
1.64
0
—
—
State
Virgin Islands
Virginia
Washington
West Virginia
Trust Fund
Balance
($ in thousands)
Ratio of Trust
Fund
to Total Covered
Wages
361,745
632,260
143,400
Source: Employment and Training Administration, U.S. Department of Labor, Unemployment Insurance Data Summary, 3rd Quarter 2013 Report, Washington, DC, 2013,
Table: Financial Information by State for CYQ 2013.3 and individual state reports, http://ows.doleta.gov/unemploy/content/data_stats/datasum11/DataSum_2013_3.pdf.
Notes: Total covered wages are based on extrapolated wages for the most recent 12 months. Trust Fund Balance does not include outstanding debt. States may have
obligated some portion of their UTF funds and may be borrowing to fund unemployment benefits even if the state’s UTF balance appears to be positive.
N.A. = Not Applicable: these states have outstanding debts that exceed their fund balances. Conversely, “—” no outstanding federal loan (states may have additional loans
financed outside of the UTF).
The Unemployment Trust Fund (UTF): State Insolvency and Federal Loans to States
Congressional Research Service
15