Topics in Unemployment Insurance Financing

Wayne Vroman

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Vroman warns that states are more at risk for insolvency in the late 1990s than they were in 1990 and that a repetition of widespread and large-scale borrowing of the past is a distinct possibility. He bases this statement on an empirical study that examines historical levels of states' UI trust fund balances between recessions, and the specific methods used to finance trust fund blanaces. These methods include traditional means of financing, tax-base indexing, state reserve funds, and "e;flexible"e; financing such as solvency taxes and legislative response mechanisms. In addition, he addresses the tradeoffs of financing UI debt by either borrowing from the U.S. Treasury or state bond issues.

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