The nation’s UI system is a joint federal/state partnership originally authorized by the Social Security Act and funded primarily through federal and state taxes on employers. Under this arrangement, states administer their own programs, generally known as regular UI benefits, according to certain federal requirements and under the oversight of DOL’s Office of Unemployment Insurance. The primary objectives of this partnership are to provide temporary, partial compensation for lost earnings to individuals who have become unemployed through no fault of their own and to help stabilize the economy during economic downturns. Federal law sets forth broad provisions for the categories of workers who must be covered by the program, some benefit provisions, the federal tax base and rate, and program administration, such as how states will repay any funds they borrow from the federal government to pay benefits when state reserves are depleted. States have considerable flexibility to set benefit amounts and their duration, or the maximum period of time that the state pays benefits, and establish eligibility requirements and other program details. Regarding duration, for example, most states provided up to 16 weeks in 1938, after the program was first established. More recently, states provided up to 26 weeks.reduced benefit duration, with 20 weeks—representing a reduction of In the wake of the recession, according to DOL, 9 states over 20 percent—the most common new maximum (see table 1). Among these states, 4 enacted new maximum durations that vary according to the state’s unemployment rate (referred to in this report as “variable duration”), while the other 5 states’ new maximum durations do not vary in this way (referred to in this report as “flat duration”). All 9 states established these new durations through changes in state law. States also have flexibility to establish eligibility requirements, which can affect duration. There are two kinds of eligibility requirements. Monetary eligibility typically refers to an earnings threshold and employment history that applicants must meet in order to qualify for benefits. Based on such eligibility criteria, individuals may qualify for less than a state’s maximum duration. The other category of eligibility requirements is non-monetary, which according to DOL, refers to states’ criteria to determine if an individual’s job loss is through no fault of his or her own, and that the individual is able to work, available for work, and actively seeking work. According to DOL, each state’s law sets both monetary and non- monetary requirements for eligibility. In addition to the state UI benefits, federal emergency and extended UI programs may sometimes provide additional weeks of benefits under certain economic conditions, such as rising unemployment or economic downturns. Temporary Federal UI Programs. During economic downturns, Congress has sometimes passed legislation to provide temporary unemployment compensation. Most recently, such a temporary program was created by the Supplemental Appropriations Act, 2008 (Emergency Unemployment Compensation; “emergency benefits” for the purposes of this report). According to CRS, this represented the eighth time a federal temporary unemployment compensation program was created since the inception of the UI program. This program provided up to 53 additional weeks of emergency benefits to qualifying claimants and expired in December 2013. After establishing the recent emergency benefits program in 2008, Congress amended the program 11 times, extending it and in some cases adding weeks of benefits, according to information provided by DOL. From December 2008 until the program expired in December 2013, emergency benefits were available in all states, including the states that reduced duration, with the exception of North Carolina (see app. V). Extended UI Benefits. In addition, states and the federal government provide “extended” benefits to workers. This program, which has no expiration date, provides up to 13 additional weeks of benefits to workers who have exhausted state unemployment insurance benefits during periods of high unemployment. According to CRS, some states have also utilized an option to pay up to 7 additional weeks of extended benefits when unemployment reaches certain levels. While financing for extended UI benefits is typically shared between the states and the federal government, the American Recovery and Reinvestment Act of 2009, as amended, provided for temporary full federal funding of the extended benefits program through December 2013. According to DOL, from January 2009 to May 2013, 39 states met the criteria for extended benefits at various times, including all of the states that reduced duration, and since May 2013, no state has met the criteria for federal extended benefits (see app. V). During the recovery, the maximum period for all combined benefits—state, emergency, and extended—to qualifying claimants reached 99 weeks in some states (see fig. 1). Under both emergency and extended benefit programs, the duration of an individual’s federal UI benefits has depended, in part, on the duration of his or her state UI benefits. If a claimant was entitled to fewer than 26 weeks of state benefits, the duration of any available federal benefits to the claimant would be reduced proportionally. Under the most recent rules for the emergency program, the formula specified that, for the first level or “tier” of benefits, benefits were payable for up to 54 percent of the duration of an individual’s total state benefits.provide up to 50 or 80 percent of the duration of an individual’s total state benefits, depending in part on the rate of unemployment in the claimant’s state. For the 80 percent level to be applicable, a state must have a provision in its laws causing extended benefits to become available when the unemployment rate reaches a certain level. Both federal emergency and extended benefits were available in 2011, when duration reductions were first enacted in 6 states (see fig. 2). The UI program was designed to be forward funded and self-financed by states through a trust fund that the federal government maintains on behalf of the states.accounts through revenue from employer taxes during periods of economic expansion in order to pay UI benefits during economic downturns. Because unemployment can vary substantially during a business cycle, it is important that states build sufficient reserves so trust fund balances remain solvent during recessions. Ideally, states build reserves in their trust fund The UI program is financed primarily by state taxes levied on employers, as well as a federal tax—the Federal Unemployment Tax Act (FUTA) tax—also levied on employers. depending on the extent to which their state UI programs comply with federal criteria. Specifically, states set a taxable wage base—the maximum amount of an employee’s wages subject to UI employer taxes—and any wages above this amount are not subject to taxation. In addition, states determine the employer tax rate levied on the taxable wage base. In order for employers in a state to qualify for the full FUTA tax credit, the state’s taxable wage base must at least be equal to the FUTA wage base—currently $7,000. In addition, the state’s tax rate for each employer may vary according to the employer’s layoff records—a practice known as experience rating. Experience rating results in lower tax rates for employers with fewer layoffs and higher tax rates for those with more layoffs. States can also levy other taxes on employers, known as surtaxes or surcharges, for various purposes. This discussion of state tax provisions is based on DOL’s Comparison of State Unemployment Insurance Laws, 2014 (Washington, D.C.: 2015) and UWC— Strategic Services on Unemployment & Workers’ Compensation, Highlights of State Unemployment Compensation Laws 2014. Although these taxes are paid by the employer, economists generally have concluded that their cost is likely to be borne by workers. Additionally, 3 states—Alaska, Pennsylvania, and New Jersey—directly levy UI taxes on workers. In addition to their ability to change tax rates, states can make changes to program benefits to help ensure that funds are available to pay future benefits. For example, as previously mentioned, states can change program eligibility provisions to limit or expand the population who qualify for benefits. States can also change benefit amounts directly. Figure 3 shows the various tools states generally use to balance program revenue and benefits. Although states have flexibility to change both revenues and benefits, they can exhaust their UI reserves during periods of exceptional unemployment. In such times, states may borrow from the federal government. If a state satisfies certain conditions, loans taken from January 1 through September 30 and repaid before October 1, are interest free as long as the state does not borrow again during the fourth quarter of the calendar year. In states that do not repay their loans within a specified period, employers lose a portion of the FUTA tax credit. However, states with outstanding loans can still seek relief from these loan provisions in the form of a limit to the reduction of the FUTA tax credit and the opportunity to delay interest payments. During the recent recession, most states opted to borrow from the federal government: 36 states had federal trust fund loans, and the total borrowed reached $48.5 billion in March 2011.Islands had trust fund loan balances, totaling about $14 billion. As of March 2015, 9 states and the U.S. Virgin Measures of UI solvency are expressed as a percentage of wages, typically total annual wages earned by employees who are potentially eligible for receiving UI benefits. Among the measures that DOL reports are reserve ratios and the high cost multiple. A high cost multiple measure of 1.0 corresponds to sufficient reserves to pay benefits at the high cost rate for 1 year without taking in additional revenue, according to DOL. A similar measure is the average high cost multiple (AHCM), which divides a trust fund’s reserve ratio by the average high cost rate, which uses a multi-year average. An AHCM measure of 1.0 is the target for solvency, recommended by the Advisory Council on Unemployment Compensation and is specified in DOL regulations providing for interest- free loans. States also monitor their own trust fund balances. We have previously reported that almost all states measure their trust fund balances and make tax rate changes once per year.