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Administrative Failures Plague State Unemployment Insurance Programs

As the pandemic has unfolded, millions of Americans have been laid off, furloughed, or lost wages, while others have been unable to work due to personal health or family caregiving needs brought on by the disease. Under the CARES Act, passed in March, nearly all of these individuals are eligible to receive some form of unemployment insurance. The CARES Act also included an across-the-board $600 increase in weekly UI benefits through the end of July. But skyrocketing unemployment has slammed, underfunded and outdated state UI delivery systems, revealing administrative failures that slowed implementation of program expansions and have kept many individuals waiting to receive their checks.

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Unprecedented Increases in Claims

The UI system has never before experienced a wave of claims like this. Workers filed nearly 1.5 million initial claims last week—the lowest number since the start of the pandemic but still more than twice the pre-pandemic record. This figure also doesn’t include the over 728,000 initial claims submitted by those covered through Pandemic Unemployment Assistance (PUA), a program in the CARES Act which provides UI to freelancers, self-employed business owners, gig workers, and others unable to work due to health or caregiving needs resulting from the virus—all of whom are usually ineligible for standard UI. In the 14 weeks since the start of the pandemic, workers have submitted more than 43 million initial claims for standard UI (not seasonally adjusted). By comparison, fewer than 6 million initial claims were submitted over the same time period at the start of the Great Recession.

The UI system is a federal-state partnership. It is financed through payroll taxes on employers by both states and the federal government, with individual states responsible for designing and administering their own programs. As such, states have faced varying challenges with processing the influx of claims from COVID-19 and implementing the benefit expansion under the CARES Act. For the most part, the state programs that administer UI have proven deficient, with the process of applying for UI at the height of the lockdowns and closures characterized by crashing websites and jammed phone lines.

In an attempt to manage the influx, some states hired additional call center staff or asked workers to call or submit claims on certain days of the week based on the first letter of their last name. But these actions haven’t been enough to help state UI programs keep pace. A recent BPC survey of likely voters found that only 61% of those who applied for UI during the crisis (and were not aware of having been denied) say they have received their benefits, and 30% of those who applied described the process as hard to navigate.

Outdated Technology Slowed Processing of Expanded Benefits

The crux of the problem is that many state UI programs lack the technical infrastructure needed to swiftly implement new programs or process a high volume of claims. Twelve states use programs built with COBOL, a six-decade-old coding language whose programmers have largely aged out of the workforce. In Colorado, the state program was maintained by just a single programmer prior to the crisis. Many are also running on old hardware, with nearly 4 in 5 state workforce agencies characterizing their IT systems as “barely functional” or “needs improvement” in 2017. In fact, the inability of state UI programs to quickly implement a more complex reform influenced the decision by Congress to provide a flat $600 bump-up rather than a more complex and deliberate benefit adjustment.

As PUA was entirely new program, eligible workers had to wait several weeks to apply while states scrambled to build it into their systems. Once states launched their programs, however, problems persisted. In New York, PUA-eligible workers inefficiently had to apply for regular UI first and be denied in order to pursue benefits. Other states instructed workers to ignore automatic messages telling them that they were ineligible. While workers who eventually submit a successful PUA claim receive retroactive benefits, these are unnecessary hurdles that likely cause confusion about eligibility among workers, potentially deterring some eligible workers from applying. Indeed, in BPC’s poll, 6% of all workers said they had not applied for UI because the process is too burdensome. This group is a significant population, equivalent in size to a fifth of those who did submit claims, suggesting many more Americans would have applied for UI benefits if the process wasn’t a deterrent.

Florida offers an extreme case of administrative failure. A 2019 audit outlined 17 major issues with the delivery system, with some analysts suggesting that the system was purposefully designed to make it challenging for workers to access benefits. A mere 4% of submitted claims had been processed between the start of the pandemic and mid-April, though the backlog has since been largely cleared.

Historic Underfunding of UI Administration

The failures of state UI programs partially result from administrative underfunding, with many states struggling to keep the lights on—and the checks going out—even before the coronavirus. The federal government redistributes revenues from federal unemployment taxes on employers to provide states with a baseline of administrative funding, with additional support tied to the amount of weekly unemployment claims that a state pays out. This means states receive less support when the economy is doing well and fewer people are out of work. From 1999 to 2019, federal funding for UI administration declined by 30% on an inflation-adjusted basis, leaving states to cut administrative costs or provide their own supplemental funding to fill the gap. According to a 2017 survey of state workforce agencies, less than 8% described their administrative funding as adequate, with 55% characterizing the current level of funding as a “critical” or “serious” shortfall.

The Families First Coronavirus Response Act, passed in mid-March, included $1 billion in additional funding for the administration of UI to ensure states meet a baseline of notification and processing procedures and to help states with the administrative challenges of increased demand. While these funds provided critical emergency support for state UI programs, many of the administrative challenges—notably, outdated IT systems—are the result of a longstanding pattern of underfunding, unable to be addressed quickly amidst the crisis.

Conclusion

As the economic toll of COVID-19 runs its course, UI will remain a critical tool for ensuring financial security, but only if unemployed workers are able to access benefits quickly and efficiently. Unfortunately, administrative failures have revealed long-term, structural deficiencies in state UI programs. As policymakers determine what form UI will take during the economic recovery, they must act with deference to the current administrative limitations of state programs, while also laying the groundwork to improve capacity for the future.

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