Alabama unemployment trust fund running low, state could borrow from feds

Alabama's unemployment benefits fund running low

MONTGOMERY, Ala. (WSFA) - Alabama’s Unemployment Insurance Trust Fund is running low after dropping from $700 million to about $200 million since the pandemic began.

The trust fund is responsible for paying regular unemployment, which is up to $275 a week.

With the drastic decrease in funds, Alabama may need to borrow from the federal government. The state has two months worth of money to pay out, assuming the state’s unemployment rate sticks at 7.5 percent, according to an Alabama Department of Labor spokesperson.

“If things can improve, and we have to pay less people, that could change,” Hutchison said. “If it does become insolvent, then what we will do, like many other states around the country have already begun doing, is we will borrow money from the federal government.”

Alabama borrowed money during the Great Recession more than a decade ago and repaid it. Alabama pays out about $20 million to $25 million a week in unemployment, according to Hutchison. She suspects most states will need to borrow money from the federal government by the end of the year.

“It’s not anything that anybody’s excited about or anything that anybody wants to do,” Hutchison said. “However, if that’s what we need to do in order to pay the benefits, that’s what we’ll do.”

Hutchison did not know how much money the state would borrow if they went forward with that decision. She said the state would have about two years to pay back without interest, unless the federal government made changes.

NFIB State Director Rosemary Elebash said she is concerned about the ramifications on business owners if Alabama could not pay back the loan. If the loan were not repaid, employers would see a tax hike. Unless the federal government made changes, employers would lose their 5.4 percent discount for paying unemployment taxes, according to Elebash and Hutchison.

“I am concerned about it,” Elebash said. “So this would all be on the backs of business owners. It would be coupled with a severe reduction in business activity, particularly for retailers.”

Chief Economist for Economics Research Services Dr. Keivan Deravi called the fund “critically low,” but he said it is not surprising the state will need to borrow.

“This is extraordinary times are we require extra ordinary steps and measures,” Deravi said. “So I do not suspect that be a problem at all.”

Deravi anticipates the federal government will provide leniency to repay the loan so it would not affect employers.

“A lot of these loans would be renegotiated and extended, simply because this is like no other economic time they ever had,” he said.

Hutchison said ADOL is talking with the Governor’s office to see if part of the CARES Act money could be used to replenish the trust fund.

The $600 million stimulus benefit from the federal government does not come out of the Alabama Unemployment Insurance Trust Fund.

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