Texas Can Save Millions of Dollars, If Lawmakers Act Soon

​Texas owes $7 billion to the U.S. Treasury’s Unemployment Trust Fund.

Lawmakers here in Texas can pay off that balance entirely, without any interest charges, and without using any state funds. The only catch is that the Texas Legislature and governor would need to do so by Sept. 6, so that’s unlikely—but they can keep the cost low if they take action soon.

Unemployment insurance is a surprisingly complicated, convoluted program.

Few people understand how it works, who pays for it, how benefits are calculated for the unemployed, or who even qualifies for benefits. Congress has added even more complexities and confusion to the program over the last year and a half with bonuses, extensions, and more. There are also substantial differences between states.

While the full details of the entire unemployment insurance program could fill a textbook, here are the basics.

Businesses pay payroll taxes which finance a trust fund for each state held at the U.S. Department of the Treasury. The program is overseen by the U.S. Department of Labor. States then use this trust fund to help pay their unemployment claims. As states’ balances in the trust fund rise and fall, the individual states adjust their business tax rates to try and maintain an adequate volume of funds with the U.S. Treasury.

If a state’s account runs dry, as can happen in a severe recession, the Treasury will loan the necessary funds to that state at a variable interest rate. The state must then repay the borrowed funds, along with the interest charged to its account. Furthermore, the state must also replenish the previous balance with additional funds.

The government-imposed shutdowns over much of the last 18 months, along with other misguided policies, created sky-high unemployment in many states, including Texas. Unemployment claims skyrocketed and this quickly depleted the state’s $2 billion trust fund account. After those savings were expended, Texas had to borrow billions of dollars from the Treasury to continue paying claims.

The Lone Star State has the third largest outstanding balance with the Treasury. New York, despite having fewer people, managed to dig itself an even deeper hole, racking up more than $10 billion of red ink in its ledger with the Treasury at the time of this writing. California is in even worse shape, by a large margin. The Golden State owes a massive $25 billion to the Unemployment Trust Fund.

Fortunately, the Texan economy has improved, and the state has not borrowed additional funds from the Treasury for months. With the bleeding stopped, it is now time to address the $7 billion hole along with replenishing the $2 billion credit that the state had with the Unemployment Trust Fund before the pandemic. That is a grand total of $9 billion which should be allocated to this problem.

In normal times, Texas would have no choice but to drastically increase taxes on businesses to raise the needed revenue to cover this hole. But these are not normal times.

Congress has allocated $41 billion for Texas as part of the American Relief Plan Act (ARPA) and the Treasury Department has issued guidance to the states that the funds can sent to the Unemployment Trust Fund. Texas has the money to fund this problem—state lawmakers only need to appropriate the ARPA funds.

Time is of the essence because the Treasury has temporarily waived all interest on outstanding balances with the Unemployment Trust Fund, but that is set to end Sept. 6. Even a low interest rate will still create millions of dollars in interest charges because the state’s balance is in the billions of dollars.

While the second called Special Session just ended, the upcoming third called Special Session is when the Legislature should immediately allocate the roughly $9 billion out of the almost $16 billion in the flexible ARPA funds available.

Delaying this payment past Sept. 6 will unfortunately cost taxpayers millions of dollars, which could otherwise go to tax cuts, roads, or education.

Texas is one of 14 state accounts with an outstanding Unemployment Trust Fund balance that together total more than $56 billion. West Virginia has repaid its balance with the Treasury and so will not pay any interest. Texas lawmakers can save their constituents millions of dollars in interest charges, but only if they act quickly.

While Sept. 6 will likely come and go without payment (though maybe action at the federal level could delay it further), this bill is coming due and Texas should plan accordingly.

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