Tax Foundation: States Should Use ARPA Funds for Unemployment Reserves

The Tax Foundation released a report on the amounts that states have paid in unemployment benefits since the beginning of the COVID-19 pandemic and the current balances of state unemployment compensation (UC) trust funds; the report finds that states should prioritize using federal Fiscal Recovery Funds provided by the American Rescue Plan Act (P.L. 117-2) to replenish their UC funds to avoid “astronomically high” unemployment insurance tax rates on businesses, which automatically rise when balances for such funds are low.

The report further argues that federal relief should be used to replenish UC funds because of the constraints on how ARPA distributions can be used, and because “inadequate” balances incur financial penalties.