Alternative Strategies for Financing State Unemployment Insurance Trust Fund Deficits, State Experiences in the Aftermath of the 2007 Recession Final Report

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Release Date: April 01, 2021

Alternative Strategies for Financing State Unemployment Insurance Trust Fund Deficits, State Experiences in the Aftermath of the 2007 Recession Final Report

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Topic

Unemployment Insurance

Research Methods

Study Population

DOL Partner Agency

U.S. Regions

U.S. States

Country

About the Report

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The report presents findings from the Unemployment Insurance (UI) Deficit Financing Study. While the study is retrospective in nature, the report is designed to inform states’ decision making about UI-related borrowing activities in the future, discusses the rationale for the study, the research questions addressed and methods used, and a roadmap for the report.

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Research Questions

  • What were the decision making factors for selecting a method to finance deficits in UI programs?
  • To what extent did available information about local economic conditions, states’ UI trust fund solvency, and/or prior experience with borrowing appear to influence states’ approaches?
  • What were the estimated costs associated with different methods and configurations of borrowing instruments used for obtaining funds to finance deficits in UI programs?

Key Takeaways

  • Respondents from all states—from UI systems as well as financing agencies, legislative staff, and other parts of government—suggested that economic considerations played a key role in borrowing decisions.
  • State respondents in five states cited interest rate differentials as a factor. There was a common perception that interest rates on loans from the U.S. Treasury (Title XII loans) exceed those of municipal bonds.
  • Current and former state UI agency staff in both bonding and Title XII states said that the Title XII process was relatively straightforward, simple, and well understood. Respondents reported the written guidelines on Title XII borrowing and repayment from the S. Department of Labor (DOL) were helpful and “well communicated.” In contrast, there was no written guidance from the Department on UI bond issuances that these states could use for making borrowing decisions.
  • The four states that issued municipal bonds to fund their UI trust funds often received helpful information from other states that did so previously, such as Texas, and from bond market representatives such as municipal financial advisers, underwriters, and bond counsel.

Research Gaps

  • One federal official with extensive private sector bond counsel experience noted that they rarely came across UI bonds in their practice. All federal officials interviewed—who included some of the country’s top experts on tax-exempt bond law—indicated they were very interested in this study, with one official calling the lack of systematic research in this area a “notable liability.” (page 21)

Citation

Vroman, W., Gordon, T., Eyster, L., Huffer, E., O’Brien, C. (2020). Urban Institute. Alternative Strategies for Financing State Unemployment Trust Fund Deficits: State Experiences in the Aftermath of the 2007 Recession. Chief Evaluation Office, U.S. Department of Labor.

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The Department of Labor’s (DOL) Chief Evaluation Office (CEO) sponsors independent evaluations and research, primarily conducted by external, third-party contractors in accordance with the Department of Labor Evaluation Policy and CEO’s research development process.