The Recession of 2001 and Unemployment Insurance Financing

[...]This paper examines the recent recession, with particularattention given to developments in the labor market and in UI program financing. Its three objectives are to describedevelopments in the macroeconomy and in the labor marketthat have relevance for UI funding issues, to present theimportant developments in UI financing associated with the2001 recession (because primary responsibility for ensuring UItrust fund adequacy resides with the states, the discussionhighlights developments in several states), and to discuss theborrowing options available to states whose trust fund reservesare inadequate. The pros and cons of alternative borrowingarrangements are also noted. The discussion identifies optionsbut does not recommend a “preferred” method of borrowing.In choosing its financing strategy, a state must consider factorssuch as constitutional constraints, federal loan requirements,the size of the funding problem, interest rates on alternativedebt instruments, and the terms and conditions of debtrepayment. Finally, the paper summarizes the experiences ofstate UI programs that borrowed and repaid loans from theprivate bond market during earlier recessions.[...]