When unemployment is low, trust funds increase as more employers pay payroll taxes and less benefits are paid out. If unemployment increases, taxes can be raised to put more money back in. States can borrow from the federal government if they cannot pay claims, but must increase contributions to make up the funding.
A stark example of this was during the Great Recession, when Maine’s fund dropped from $450 million to $269 million from 2008 to 2011. Annual contributions rose from $83 million in 2009 to a record high of $167 million in 2013. Payouts peaked in March 2010 at almost $29 million.
This method can be flawed in moments of sudden economic crisis, said James Myall, a policy analyst at the liberal Maine Economic Policy Center, as the sudden influx of people filing for unemployment could stress the system if it gets to a point where claims outpace contributions. That happened in 2009. But those impacts were stretched out over roughly two years.
“Obviously, we’re in uncharted territory,” Myall said.