National unemployment stood at just 3.6% on May 5, down from a pandemic record high of 14.8% in April 2020. In just that one month at the start of the COVID-19 pandemic, 20 million people lost their jobs, crippling some state unemployment trust funds and highlighting the fragility of unemployment systems as a whole.
What did states do?
The most immediate concern for many states was making benefit payments to a wave of newly unemployed workers. Congress passed the Families First Coronavirus Response Act to give states extra federal money to help process these claims. In the rush to make these payments, however, states erroneously paid many claimants too much or paid those who shouldn’t have received funds at all, leading to significant overpayments.
Because recovering overpaid benefits can be costly, many states have either waived repayment using existing law or taken steps to change their laws to allow that to happen. Further, many states have begun evaluating where their unemployment systems fell short and allowed erroneous payments to be made.
Using ARPA to Stabilize Trust Funds
To help states avoid these problems in the future, NCSL has tracked at least 21 states that have used federal American Rescue Plan Act funds to stabilize their unemployment compensation trust funds, pay down interest, or make improvements to their unemployment insurance claims system. Most recently, Tennessee allocated $61 million for a new unemployment insurance benefits system, and Washington state has set aside $31.3 million to improve its unemployment system to detect fraud and ensure timely payments.
States with outstanding loans from the Federal Unemployment Account that set aside ARPA funding for their trust funds specifically include California and Connecticut. Other states that used ARPA funding for loan repayments and no longer have loans include Hawaii, Kentucky, Nevada, New Mexico, Ohio and Texas.
As of this writing, total ARPA funding by states for unemployment insurance is estimated to be over $16.2 billion.
In addition to exploring changes to the administration of their unemployment systems, some states are also taking another look at who qualifies to use them. Legislators in Iowa, Kentucky and West Virginia have all proposed reducing the number of weeks for which unemployed workers may claim benefits. All three states would link the maximum number of weeks of eligibility to the state’s unemployment rate.
Low unemployment rates have also spurred some states to propose tightening their work search requirements for claimants to remain eligible for benefits. Every state has requirements for unemployed workers, but as some jobs remain unfilled, legislatures are now considering changing their policies. Proposals in Iowa, Florida, Indiana, Kentucky, Wisconsin and others would potentially increase the minimum number of activities claimants must perform to be eligible or more strictly define what even counts as an eligible activity.
More information about these bills and their statuses can be found in NCSL’s Unemployment and State Employment Laws and Legislation database.
Zaakary Barnes is a policy associate in NCSL’s Employment, Labor and Retirement Program.