State's Unemployment Trust Fund Set to Run Out of Money, Payments Not Affected

The state is asking the federal government for a loan to help fund depleting unemployment insurance trust fund

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More than 660,000 Texans are unemployed because of the COVID-19 pandemic.

The Texas Workforce Commission has paid out more than $1.4 billion in benefits.

However, there is concern about the state’s depleting unemployment insurance trust fund used to provide unemployment benefits.

The fund is expected to run out of money soon, according to the state and a tax policy group.

The state stresses unemployed Texans filing for unemployment insurance should not worry.

Texas collects unemployment taxes which go into a fund to be used in a time of unemployment. But there’s a problem.

“What we’ve seen in Texas and a couple other states is that those funds were not enough to cover potentially long-running unemployment spells like we’ve been seeing so far,” said Raymond Robertson, Texas A&M Professor of Economics and Government. “The danger is that the fund that’s been set aside will run out of money.”

National tax policy group the Tax Foundation estimates Texas’ unemployment fund will run out of money in three weeks, based on fund data and continuing claims as of April 11, 2020.

“Texas is one of four states that’s most at risk of becoming insolvent,” said Robertson.

The professor doesn’t blame job claims as the biggest reason for the dilemma.

“But because initial reserves were lower than other states,” he said.

In other words, the state did not previously save up enough money to handle the current crisis.

But Robertson points out the state has several ways to remain solvent.

Once the state’s funds run out, Texas has the ability to borrow money from the federal government to cover its obligations.

In a letter to Secretary of Labor Eugene Scalia, Governor Greg Abbott authorized the Texas Workforce Commission (TWC) to officially request access to interest-free federal loans, known as Title XII to pay unemployment claims and the accelerated release of funds from the Texas account of the federal Unemployment Trust Fund, according to a press release dated March 16.

“With claims on the rise, our current balance of unemployment funds is projected to run out by the end of next month [April], so we must accelerate the delivery of necessary dollars,” stated the governor. Title XII is a federal process that allows states to receive advances (loans) from the federal government to continue to cover Unemployment Benefit payments without disruption, according to the press release.

A spokesman for TWC released a statement to NBC 5 on Tuesday regarding the depleting fund:

‘Based on the level unemployment benefit payments for the past week, we anticipate Title XII advances could be necessary near the end of May.  However, it is important to note that required unemployment benefit payments will occur without interruption or delay regardless of when Title XII advances are needed.’

Robertson also stresses Texans receiving unemployment benefits should not worry.

“There’s no way people are not going to get their checks, even if the current funds run out because there’s lot of other places for them [the state] to get money,” said Robertson. “Just hang on. There’s no worry to people about getting your checks.”

After seeking help from the fed, Texas would then be able to look to the private market for loans, but Robertson cautions that would be more expensive.

The professor does say this may be a lesson for the state of Texas.

“We really need to start thinking, from a public policy point of view, how to repay that money [federal loans] and maybe store up for another rainy day. Maybe this is a good lesson for the future,” he said.

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