Demonstrators demand more benefits for workers laid off in the pandemic at the Utah State Capitol. Continued layoffs are putting pressure on states to borrow money to keep paying benefits, eventually forcing a rise in taxes on businesses struggling to recover. Rick Bowmer/The Associated Press
Read Stateline coverage of the latest state action on coronavirus.
As a historic wave of layoffs continues, states are grappling with evaporating funds for unemployment benefits that could force cuts to those payments or hikes in business taxes.
Thirty-one states already are dipping into federal CARES Act dollars or seeking federal loans to keep money in the unemployment coffers. Those and other states also are considering legislation or other actions to fend off business tax increases triggered by high jobless payouts.
Unemployment insurance trust funds are paid for by business taxes and pay out benefits to laid-off workers. If the funds start to run out of money, state and federal law triggers tax increases to replenish the accounts.
“It is a big deal for states and businesses,” said Shelby Kerns, executive director of the National Association of State Budget Officers. “States generally do not want to increase taxes on businesses in an economic downturn, and borrowing only pushes those increases to the future, which can make the economic recovery more difficult.”
Twenty states have asked for federal loans to tide them over, ranging from California to Texas, according to U.S. Treasury Department records. Most recently, Louisiana borrowed million Oct. 7 as a special legislative session drafted measures to suspend automatic tax hikes and benefit cuts.
More than a dozen mostly Republican states have opted to use federal CARES Act money to supplement unemployment trust funds, according to Emily Maher, a policy associate who monitors CARES Act spending for the National Conference of State Legislatures. Some Democrats have criticized the strategy, saying CARES Act money should be used for more immediate needs such as food banks and rent support.
Among states with Democratic governors, only Hawaii, Maine and Montana have dipped into CARES Act funds. Montana Gov. Steve Bullock set aside million Oct. 7.
In a recent move among Republican states, Wyoming Gov. Mark Gordon allocated million in CARES Act funds for unemployment on Oct. 8.
Hawaii and West Virginia are the only states to put both loans and CARES Act dollars toward the unemployment kitty. Hawaii has the nation’s highest rate of workers on benefits — 18% as of Oct. 3.
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