Coronavirus Is Slamming State Unemployment Systems

State unemployment insurance programs are facing an onslaught of financial and administrative burdens as the coronavirus outbreak drives vast numbers of Americans out of work.

Even with federal support that's materializing, experts agree that states are likely to see their unemployment trust funds bleed out as the historic disease outbreak—and efforts to stop it—cause a monumental economic slowdown. At the same time, state agencies are trying to handle a crush of unemployment insurance claims that are skyrocketing far beyond normal levels.

To fight the virus’ spread, government officials have ordered businesses to close, and are urging people to limit their movement outside of their homes. Businesses ranging from neighborhood restaurants to airlines have all seen sales collapse.

On Thursday, the U.S. Department of Labor released jobless claim numbers that hit a record high of more than 3 million people seeking benefits in the last week.

The federal government is stepping up with billions of dollars to help cover mounting costs. 

A centerpiece of a just-brokered congressional relief package would expand the maximum unemployment benefit amount by $600 per week above base levels—a sizable gain given that the average weekly benefit nationwide was about $385 earlier this year. 

There are other provisions in the bill that are meant to bolster unemployment insurance as well. All told, the measure is now expected to include about $250 billion of unemployment funding. And earlier this month, President Trump signed a law that allotted $1 billion for emergency grants to states, to help them cover the cost of processing and paying unemployment benefits.

As plans take shape in Congress, the coming burdens for the states can be seen across the country. 

California Gov. Gavin Newsom said on Tuesday that the seven-day average for unemployment claims in his state was 114,000, compared to an average before the crisis of about 2,500. “Our unemployment insurance system is being overwhelmed,” the governor said.

Newsom has made a case that the federal government should direct block grants to states to help them cover unemployment costs.

California is not alone in dealing with a wave of unemployment filings. By noon last Tuesday, New York’s Department of Labor said that its unemployment insurance phone line received more than 21,000 calls, compared to 2,000 on the same day a week before.

On March 9, Colorado had just 400 applications for unemployment benefits, according to Cher Haavind, a spokesperson for the state’s Department of Labor and Employment. A week later, the figure jumped to 3,900. In the 24 hours leading up to Wednesday, it was over 20,000.

“I think that paints a picture of the last two weeks and the surge of demand,” Haavind said.

The wave of applicants overloaded Colorado’s systems for processing claims in recent days. 

People ran into error messages online and a call center received 186,000 calls before 8 a.m. one day earlier this week. The state has taken a number of measures to address these issues, making technical changes and adding dozens of additional staff to answer the phones.

The left-leaning Economic Policy Institute said Tuesday that based on an analysis it had done of news reports, a greater share of Americans filed for unemployment insurance in the week ending March 21 than in any prior week in the nation’s history.

Its modeling predicted that 3.4 million people filed new claims this past week, which would raise the number of the unemployed from 5.7 million to 9.1 million. This alone, the group said, would drive up the unemployment rate from 3.5% to 5.5%.

Unemployment insurance is a state-federal partnership. States collect payroll taxes from employers and the money is placed in reserve funds to pay out benefits when companies lay off workers. 

The federal government also collects an unemployment tax on a portion of each employee’s pay. This money is used to cover state and federal administrative costs, loans to state trust funds when they run short on cash, supplemental federal benefits and other costs.

David Cooper, an analyst with the Economic Policy Institute, said that at the start of the year about 30 states met the Department of Labor’s guidelines for having unemployment trust funds that were considered to be solvent, or sufficiently funded to cover benefits.

He explained that the solvency standard the department uses basically weighs whether states have enough money in the funds to cover an average of benefits paid over one year during the past three recessions. But compared to those past downturns, Cooper said that the unemployment insurance claims are likely going to be more severe as the fallout from the coronavirus batters the economy.

"UI claims are pretty much off the chart, they're expected to be for this coming week," he said.

“Even the states that are technically solvent are going to not have enough money to deal with the flood of claims that they're about to see, or that they're already seeing,” Cooper added.

An analysis that California’s nonpartisan Legislative Analyst’s Office issued this week said that given the magnitude of initial unemployment claims received so far, the state’s unemployment trust fund likely will become insolvent in the coming months.

When this happens, states can borrow money from the federal government to pay benefits. Many did so in the wake of the Great Recession. They may also turn to the bond market.

Depending on the circumstances, to pay off this debt or to rebuild a trust fund, a state could have to sometimes resort to either benefit cuts for workers or tax increases on businesses. 

The California analysis highlights that the federal bill approved earlier this month suspends the accrual of interest on federal unemployment insurance trust fund loans to states through the end of 2020. This promises to save states some money. 

During the Great Recession, which began around 2008, California’s federal unemployment insurance loan balance peaked at $10.3 billion at the end of 2012 and the state paid about $300 million annually out of its general fund in interest on that debt, the analysis notes.

The $600 per week benefit expansion in the pending federal package would last for four months and would supplement standard unemployment benefits, which vary widely from state to state.

Many states provide 26 weeks of unemployment, but others are less generous. Florida, for instance, only provides benefits for 12 weeks. There are also differences between states in terms of who normally qualifies for benefits and the size of the payments people receive.

The basic unemployment program in most states replaces about half of a worker’s wages. In January, average weekly benefits ranged from $213 in Mississippi to $546 in Massachusetts, according to the Center on Budget and Policy Priorities.

Demetra Nightingale, a fellow at the Urban Institute, described the $600-a-week benefit as a potentially “huge” step towards helping to replace lost earnings. She also said the emerging plans in Congress to extend unemployment protections to the self-employed and to contract, or “gig”, workers were a plus in what’s been proposed.

"At least in the short run, there's a lot of federal money going to the states,” she said. 

Looking further ahead, though, she said a concern for states will be not just how many people lose their jobs and file for unemployment, but also how long they’re out of the workforce.

“The economy is not going to just click back on again,” Nightingale said. “There are going to be some businesses and some sectors that may have long-term declines.”

"The longer people stay on the rolls, the harder it is for the states in terms of their funding,” she added. 

There are unemployment programs that the federal government already has in place to assist people in states with high levels of joblessness. One extends benefits beyond their standard length. Another involves the feds picking up costs after disasters.

Cooper said that Congress should step in to fully fund all extended benefit costs, rather than sharing those expenses with the states. “That would help a lot,” he said.

The federal relief bill from earlier this month does provide full federal funding for extended unemployment benefits for a limited time, in states that hit a high unemployment threshold and meet other requirements. Normally, states would pay half of this cost.

Nightingale emphasized that the administrative costs states are apt to face in the current crisis are nothing to scoff at. Handling the flow of additional unemployment funds, dealing with strains on call centers and—sometimes outdated—technology, are among the issues here.

Haavind said Colorado’s unemployment division has shifted about 90 employees from their regular duties to reinforce its usual call center staff of 70. Because of the virus, most of these employees are teleworking, with only about 10% reporting to the agency’s Denver office. 

The state has also set up a “gating” system for those filing claims online to slow down web traffic, allowing only people with certain last names to log-on and apply for benefits at different times.

“I think that’s helped,” Haavind said. But she added: “We're certainly not where we need to be.”

Other options the agency is looking at to handle the workload include an online “chatbot” to guide people on its website without them having to interact with staff. The state will also try to link up employers offering part-time jobs with workers through a “virtual job fair.”

Colorado’s unemployment trust fund in the early months of this year had about $1.1 billion in it, enough to support roughly 18 months of claims with no risk of insolvency based on previous estimates, Haavind said. That was before the coronavirus set in. The economists who do the projections for the fund haven’t updated them yet.

“Certainly, if you just do basic math,” Haavind said, “it’s unexpected, it’s unprecedented.” 

“We are hoping that in one of these federal packages that’s being considered there could be potentially repayment of benefits from the feds,” she added. Haavind also stressed, however, that the state has never failed to make unemployment benefit payments in a recession.

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