Recession readiness in the unemployment insurance (UI) system involves a number of factors. Perhaps the most important is whether core elements of eligibility and payment level in a state will be accessible to enough claimants when they are needed and will replace enough of those jobless workers’ lost income so as to provide a true macroeconomic stabilizer. However, realizing the goal of true UI recession readiness would either require comprehensive federal reform, or an incredibly ambitious fifty-three-system strategy to dramatically improve access and benefit levels.

However, there is one significant element of recession readiness that is not only possible, but also very close to coming to fruition: modernizing UI administrative funding. Both the House and Senate have agreed to the funding level recommended in the President’s FY23 Budget Request. If these funding levels survive in any end-of-the-year budget deal, the nation will be on track to making sure that state agencies are better equipped in terms of technology and human resources to pay claimants the right benefit at the right time.

Adequate funding for UI administration is an integrity issue. Whether the policy goal is ensuring that people who lose work involuntarily have a smooth experience on one of the worst days of their lives, or making sure that states have a strong defense against criminal syndicates using stolen data to try to access public benefits, adequate UI funding is critical to achieving those goals. It is difficult to overstate the heroic efforts that public servants have made for the past few years to keep the system running under extreme duress, and without significant investment, there is a substantial risk that these stressed systems might not continue to function at the level they have.

At a time when unemployment levels are historically low, UI agencies should be using this breathing room to build better and more resilient systems for the future. However, it will be difficult for them to do that without a significant increase in administrative funding, as many agencies are still exhausting resources on looking backward in an effort to analyze and deal with the lingering complications created by the COVID-19 pandemic.

Lessons from the Pandemic

Pandemic-era unemployment programs saved millions of people from poverty, allowed people to care for loved ones during a difficult time, and created an astounding ”V-shaped” recovery early in the pandemic. The system, for the most part, worked. But the pandemic also presented sizable challenges to state UI agencies, for a number of reasons—all of which could have been lessened if these agencies were routinely and appropriately funded.

States are still digging out from the havoc created by the pandemic. To understand why systems are where they are, it is important to understand the context of where systems were in March of 2020, and what subsequently happened with them. First, states entered the pandemic at a fifty-year historic low in terms of administrative funding (see Figure 1). In fall 2019 and leading up to the COVID-19 crisis, state UI directors were sharing notes on how they might be able to staff up in the case of a mild recession, and were still quite concerned about increases in workload of up to potentially 10 percent.

Figure 1

The first week of March 2020, Congress realized that the pandemic was going to lead to increased workloads, so it allocated $1 billion—or roughly 50 percent of that fiscal year’s allocation—to state UI administration in the Families First Coronavirus Relief Act (FFCRA). The act tied a couple of strings to that funding—most notably, for the purposes of this conversation at least, agencies had to demonstrate they were experiencing an increase of at least 10 percent of current workload. Some Congressional staff and advocates were slightly concerned—even at that time, as the pandemic shutdown was happening—that 10 percent could potentially be too high a threshold for some states to meet.

While it is difficult to recall the absolute urgency that Congress and public health officials felt in March 2020, when hospitals and morgues were overflowing, sheer numbers help to tell the story. For the week ending March 7, 2020, nationwide initial claims were 211,000. Just a couple of weeks later, during the week ending March 21, initial claims had jumped to a shocking 3.3 million claims—a whopping fifteen times higher. (This claims level shattered the highest previous new claims level on record, which was 695,000 in October 1982.) Then, the following week, new claims hit 6.6 million, and the week after that, another 6.6 million claims came in. Initial claims in all unemployment programs were more than 1 million every week for more than a year.

Also in March 2020, Congress wisely added three entirely new programs for states to respond quickly to get funding out the door during the pandemic. These measures were necessary to address benefit access, adequacy, and duration, which were too spotty across states to provide workers with the income security needed to stay home during widespread shutdowns necessary to help slow the spread of the virus. Ordinarily, when Congress passes modest changes to unemployment insurance, experts recommend giving states two years to implement those changes, both to allow for legislatures to pass conforming amendments and to iron out the myriad complicated questions that arise between states and the federal government. In the crisis, however, the U.S. Department of Labor was able to issue guidance on the new programs in a matter of days so that states could stand up programs within around a month on average after passage of the CARES Act. As states implemented these programs, refinement and clarification of basic questions around program operation continued throughout the life of the programs and beyond.

Challenges implementing these new programs swiftly led to well-documented delays in claim approvals and laid the groundwork for fraudsters to seize the chaotic moment to attack beleaguered state agencies. The same lack of resources that made it hard for legitimate claimants to get benefits in the first days of the pandemic also laid open opportunities for organized crime rings to steal money that should have gone to workers.

While states had funding through the FFCRA and CARES Act, hiring quickly in the midst of the pandemic and training new staff was an insurmountable challenge. Adjudicating UI claims typically is beyond complicated, and fully training adjudicators takes many years. While states were able to bring on surge staff during the pandemic, these new hires lacked the training and expertise needed to play key roles, and in some cases they simply ended up creating more work for seasoned staff without adding much value. Surge funding alone proved to be an inadequate attempt to help systems function in the crisis of the pandemic—state UI agencies need to have sufficient and sustained base funding in order to recruit and retain trained staff throughout all stages of the economic cycle.

In addition to having to replace lost staff, state agencies are still trying to dig out from under the COVID-19-era workload.

The human beings responsible for setting up new systems and paying benefits during the onset of a global pandemic did the best they could under extreme conditions. Workers had to work overtime for months and years on end. They spoke daily to claimants experiencing one of the most stressful moments in their lives. They heard suicide threats and death threats. They lost critical time with their families and communities. State UI agency workers also were themselves experiencing the trauma and shock of the pandemic and suddenly navigating new work-from-home protocols. Since the pandemic’s start, an untold number of trained staff have retired, moved to other agencies, or left government service altogether. Dozens of state UI directors have retired, resigned, or been replaced as a response to systemic failures.

In addition to having to replace lost staff, state agencies are still trying to dig out from under the COVID-19-era workload. Even though the pandemic-era programs are long since over, the unprecedented volume of claims and the honest mistakes that states and claimants made in delivering and applying for benefits has left a backlog of errors or potential errors that states need to investigate. For example, states are still working their way through income documentation to ensure that the right benefits were paid, or they are working through setting overpayments for relatively small issues such as benefits paid using gross rather than net income. States are working to both set and waive innocent mistakes, but many of these circumstances will take many staff hours to contend with, perhaps over a period of years.

As mentioned above, clarifications to rules around pandemic programs—particularly Pandemic Unemployment Assistance, the program that covered workers not otherwise eligible for regular unemployment benefits—continued to occur throughout and after the end of these programs. The list of questions and answers published in guidance letters is well over forty pages. Each instance of a state initially interpreting a question incorrectly results in additional determinations and additional rounds of overpayments established, and then appeals and waivers applied.

States will not be able to fully resolve pandemic-era issues for years. This collossal, unprecedented workload is taking up the limited staff resources available now. It is worth restating repeatedly that, in addition to decades of underfunding, under-resourced technology, and the need to prepare for another recession, states are still sorting out sheer mountains of payment issues that are now nearly three years old. So today, claimants are getting notice that benefits they received years ago might have been in error and they now have to work those issues through overburdened systems, causing some to throw up their hands and tell their friends and neighbors never to apply for unemployment insurance.

Funding Priorities Moving Forward

Much ink has been spilled over state computer systems still operating on COBOL mainframes. While this situation might not be ideal, it is not the case that all “modernized” systems work well or that all mainframe systems have performed poorly. While modernizing technology is a laudable goal, UI agency reliance on outdated technology is but one symptom of systemic underfunding, and it is important to emphasize here that upgrading computer systems is absolutely not a panacea. There are critically important requirements in the Social Security Act (which initiated the nation’s unemployment system) that trained merit staff make all actual decisions about eligibility, and so sustained funding for employing the human beings who are ultimately responsible for adjudication is important. At the same time, adequate sustained administrative funding is also necessary to adopt needed technological improvements. The problem is that, right now, states are struggling to move forward and think about improving systems while they are overburdened with looking backward.

Passage of the funding levels laid out in the FY 2023 Budget Request is an important down payment toward a functioning UI system in the future. This funding is far from the only thing that is necessary to build a system that pays claimants the right benefits at the right time, but a journey of a thousand miles begins with a step.