Colorado Expands Unemployment Insurance—And Others Are Watching Closely

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Welcome back to Route Fifty’s Public Finance Update! I’m Liz Farmer and this week, I’m writing about a new public benefits program in Colorado that fills a gap in our existing unemployment insurance program.

It was during the pandemic that the many holes in our public safety net programs were exposed and perhaps nowhere was the spotlight the hottest than on unemployment insurance (UI). 

The U.S. economy relies heavily on the labor of low-wage workers and millions of them in March 2020 weren’t eligible to collect unemployment benefits because they were employed on a contract basis. Congress remedied that by temporarily expanding eligibility to these “gig workers.”

But those interim accommodations had at least two shortcomings: Legacy systems weren’t equipped to quickly adapt to that expanded eligibility and state unemployment offices struggled to keep up with the overwhelming demand.

Colorado solved those deficiencies with a low-cost approach that got money out the door quickly. That method could provide a model for adapting or modernizing public assistance programs elsewhere.

A Vulnerable Part of the Workforce

Nationwide, undocumented workers make up 3% of the workforce but are over-represented in industries like hospitality and farming that were most vulnerable during the pandemic. 

In Colorado, undocumented immigrants play a larger-than-average role and make up nearly 5% of the working population. The roughly 153,000 workers represent 17% of the state’s agricultural workers, 13% of construction workers and 9% of hospitality workers. Those industries ground to a halt three years ago, but that’s not how it looked on paper, said Kathy White, executive director of the Colorado Fiscal Institute.

“Even though we knew that the jobless numbers in those resort communities were extremely high, the initial UI claims didn’t match,” she said. “Those workers who needed it the most weren’t getting unemployment insurance and … a significant reason is that those industries rely heavily on immigrant labor.”

Colorado closed that gap during the pandemic thanks to the launch of the Left Behind Workers Fund by the Colorado nonprofit, Impact Charitable. That fund ultimately distributed $38 million to undocumented Coloradans from a mix of private and public funds. Recognizing that many eligible workers might be wary about giving out their information because of their threatened status, Impact Charitable partnered with community organizations to screen applicants and sign eligible workers up to receive assistance. The entire sign-up process can be completed on a mobile device in less than 30 minutes. 

 “We tried to create tools and an interface that was easy to use … so that someone who is eligible can get identified right away,” said Mark Newhouse, who serves on Impact Charitable’s board. 

And unlike traditional benefits, which can take weeks to apply for and even longer for the first check to arrive, the Left Behind Workers Fund typically issues benefits (through a direct bank transfer or a preloaded debit card) less than two weeks after signing up.

The fund was so effective at delivering cash assistance quickly that other cities are already using the nonprofit’s spinoff company, AidKit, to administer other pilot programs that distribute money. But Colorado is the first state to make the Left Behind Workers Fund and its approach permanent with the launch of its Benefit Recovery Fund this summer. 

The Benefit Recovery Fund, which was established by the legislature last year, will provide unemployment insurance to undocumented workers who qualify. It gets around the federal ban on giving benefits to undocumented workers by diverting a portion of the UI taxes the state collects before they’re transferred to the Treasury Department. The percentage of taxes diverted is based on the state’s estimate of the undocumented employees, whose employers are already paying unemployment insurance premiums on their wages.

Colorado had estimated that administering the fund itself would cost roughly $55 million upfront. So, the Colorado Department of Labor and Employment recently hired AidKit to build out the system and administer the fund. While neither AidKit nor CDLE would share the final cost, Newhouse said it will run “tens of millions of dollars” less than the state building the system.

“Unemployment insurance administration is burdened by the fact that existing systems are antiquated [and] difficult to modify,” said Newhouse, who is also the co-founder of AidKit. “AidKit was born in a world where you have to build systems very fast, so I think that's having a big impact.”

A Model to Watch

As other states consider whether to make their own safety net pilot programs permanent, Colorado’s experience is being closely watched. In fact, California Gov. Gavin Newsom vetoed a bill that would have created a similar unemployment fund for undocumented immigrants, citing concerns about the estimated $200 million upfront cost.

The idea of getting out money with few (or no) strings attached gained popularity during the pandemic as legacy systems for unemployment and housing assistance proved unable to adapt quickly to changes created during the public health emergency. Research has also shown that direct cash transfers are a more effective and equitable means of assistance.

Dozens of localities, for example, are piloting universal basic income programs—using AidKit—with Cook County, Illinois, running the country’s largest. Other states including California, and New York, piloted their own excluded workers funds and at least California and Washington state are considering how to create a permanent fund for undocumented and unemployed full-time workers.

White of the Colorado Fiscal Institute said that third-party administration might not make the most sense for taking over incredibly large and data-heavy programs like traditional unemployment insurance or housing assistance, but they’re a good fit for when states or localities want to expand an existing program.

“Many of our safety net systems were created almost 100 years ago when our population and our economy was very different. But there are a lot of people falling through the cracks,” said White. “That’s where these more nimble third-party administrators can come in with cash assistance and design something that fills in those gaps.”

An earlier version of this article mistakenly referred to Mark Newhouse as AidKit's CEO. He is the co-founder. It also said Chicago was piloting the country's largest universal basic income program. The largest pilot is in Cook County, Illinois.