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AUGUSTA, Maine — Maine’s labor commissioner has expressed confidence that the state’s unemployment fund will be able to weather the coronavirus crisis despite record-breaking numbers of claims and payouts.
The virus has led to an unprecedented number of claims as the U.S. economy has fallen off a cliff. Maine saw nearly 45,000 unemployment claims between March 16 and 28, setting a weekly new high that was more than quadruple the high during the 2007-2009 recession. The liberal Economic Policy Institute estimates up to 87,000 jobs could be lost by June.
Maine’s unemployment system was in a historically good financial situation until the crisis forced it to pay out $6 million alone to people who filed between March 15 and March 21. For comparison, the state paid out a $10.4 million total in February before coronavirus started ravaging the job market.
Unemployment trust funds — financed by wage taxes paid by private and federal employers — are evaluated annually for solvency by the U.S. Department of Labor. Solvency is calculated by averaging the three highest years of payouts of benefits over the past 20 years and comparing it to a fund’s current level. If a state can pay that amount monthly for a year, it is solvent.
Maine’s fund stood at $508 million at the beginning of 2020, the highest level it has seen in 40 years. That amount would last the state about 15 months, according to the federal government. It currently has $497 million and its average weekly benefit was $351 in February.
Maine Department of Labor Commissioner Laura Fortman said in a March interview that the state’s trust fund is strong enough to survive an influx of claims without borrowing from the federal government. But experts say the speed at which job loss is occurring and the uncertainty of how long the virus pandemic will last say states should be prepared for the worst.
Don Boyd, co-director of the Project on State and Local Government Finance at the University of Albany, said he was “sure the funds are going to be overwhelmed.” He said states might need up to three times normal funding for benefits depending how long the recession lasts.
“The solvency rating departments use is for more normal recessions,” Boyd said. “What we’re seeing here is different.”
Funds are structured to ebb and flow with the economy. 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.
Fortman noted the state will not bear the entire burden of the influx of claims alone. The stimulus package passed by Congress last month expanded benefits for those who are self-employed or seeking part-time employment, and allows people who have exhausted their benefits allotment an additional 13 weeks of benefits.
Those demographics are unable to collect benefits now, but the U.S. Department of Labor released guidance on how to implement the programs Thursday. Those costs will be picked up by the federal government, not the trust fund.
Such a boost may help states for now, said William Glasgall, director of state and local initiatives at the Volcker Alliance, a think tank studying government budget practices.
“What if a year goes by and unemployment is still massive?” Glasgall said. “We have no idea where this disease is taking us.”