Lingering unemployment debts squeezing states, employers

October 3, 2013

Lingering unemployment debts squeezing states, employers

As states begin to heal from the Great Recession, a side effect from the injections of federal money into state unemployment funds threatens to slow the recovery. When states run out of their own money to fund unemployment, they borrow from the federal government to pay benefits to the unemployed, and then repay the loans out of their own pockets when things improve.

However, many states were unprepared for the increase in unemployment that began in late 2007 and quickly borrowed large amounts. The lack of funding was due to states adopting a "pay-as-you-go" approach that held taxes artificially low when the economy was healthy instead of preparing for recession, according to the Center on Budget and Policy Priorities. The increased borrowing now means that employers in cash-strapped states are seeing their unemployment insurance tax rise.

Employers hurt when state fails to pay
Employers in states that fail to fully repay loans within two years are subjected to a yearly increase in federal unemployment tax paid by employers until the loan is repaid. Due to the size and length of the recession, some states now have massive debt obligations that could take years to pay back. North Carolina is one of the many states that was ill-prepared when the recession hit and was left with nearly $2 billion in debt to the federal government.

States will need to reduce unemployment benefits
The state passed legislation in July that has dialed down the length and size of state unemployment benefits, according to News & Observer. While other factors will affect the loan repayment, the changes to North Carolina's unemployment benefits could mean loans are repaid by the end of 2015 instead of 2018.

States that do not follow North Carolina's lead in reducing state unemployment may find themselves hindering their recovery. While federal unemployment tax contributions are low – 0.6 percent of the first $7,000 paid annually to each employee – the yearly increase in that figure until the loan is repaid means more unpredictable costs for employers. To some companies, that liability could be one more reason that increases to their workforce will be placed on hold.

While the effect of that tax increase on hiring numbers is speculative, states have plenty of other reasons for expediting loan repayment. The realization that unemployment programs need to be forward funded means not only paying down the current debt, but shoring up reserves for the future. A state that has liability from the Great Recession when the next downturn hits will find itself in a precarious situation.

To learn how your organization may take action to address these cost increases that pose a new challenge to your organization, complete the information request form on the right.


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CCSCT was approached by First NonProfit to discuss its Unemployment Savings Program and ways the program could significantly reduce the amount of unemployment taxes we were paying. At the time, our agency was paying approximately $80,000 per year. First NonProfit conducted an analysis to determine if making the switch would be in our best interest, and it clearly was based on our circumstances. The first year on the program, CCSCT saw a 70% reduction in its unemployment costs and each year, continues to experience further reductions as a result of having minimal claims. Some additional benefits of the program including having a fixed annual cost, an interest-baring reserve account, professional unemployment claims management and representation at all unemployment hearings. This has been one of the best decisions we have made.

Community Council of South Central Texas, Inc., Seguin, TX

We first started using First Nonprofit’s Unemployment Savings Program when we were a small startup nonprofit.  We didn’t have an HR department and needed expertise in the event that an unemployment claim was made.  We knew we were eligible to be a reimbursing employer, but weren’t sure how to navigate that process.  They made it easy to set things up, plan for, and then manage claims when they came at a very reasonable cost. The amount of time and stress they’ve saved us dealing with all this has been worth way more than the cost.  We’ve now grown to a large nonprofit and do have an HR department but have no plans to stop using their services.  I highly recommend them to every nonprofit I come into contact with!


Throughout our membership in the Unemployment Savings Program, First Nonprofit understood our demands, community dynamics, and the importance of seamless services; that allowed us to serve our constituents better.

Prevent Blindness America, Chicago, IL

Because INCS advocates for the operating conditions that allow charter public schools to provide high quality public education, partnering with First Nonprofit was an easy decision. First Nonprofit’s unemployment programs provide our member schools two operating elements crucial to their ability to provide high quality public education: savings and budget certainty. Capable, committed teachers are the key to student success. By participating in the unemployment insurance savings plan, charter public schools gain peace of mind and are able to invest more money in their teachers.

Illinois Network of Charter Schools, Chicago, IL

It has been our sincere pleasure to maintain a strong, vibrant business partnership with First Nonprofit. We greatly admire their strong industry knowledge, technical expertise, constant professionalism, knowledgeable and dedicated staff. They are always extremely responsive, personable and provide us with the necessary guidance and recommendations on a numerous variety of employment scenarios.

Thresholds, Chicago, IL

NYCON members who use First Nonprofit’s programs enjoy enduring savings and improved efficiency. Our association knows that success, because from the beginning, we achieved the same great benefits. Great savings, seamless technology, and responsive service. NYCON highly recommends First Nonprofit’s remarkable unemployment solutions.

New York Council of Nonprofits, Albany, NY

Visually Impaired Preschool Services has been a client of First Non-Profit since it was first offered as a benefit of VisionServe Alliance. We completed a thorough evaluation of cash savings to our agency before taking advantage of this wonderful benefit and it has been a very wise decision. Our experience with the processes from accounting to claims have been professional, expeditious and easy.

Visually Impaired Preschool Services, Louisville, KY

Luckily for us, our interactions regarding any issues with staffing has been very minimal! I can say that all other interactions with regards to billing, 941 reporting, etc. have been extremely pleasant, accommodating and easy to work with. Kim Ghanayem is always prompt, professional and friendly. Thank you so much!

Neurologic Music Therapy Services of Arizona, Phoenix, AZ