The lockdowns and business closures associated with the COVID-19 pandemic have produced record-high unemployment levels in Colorado. As a result of a sudden spike in unemployment insurance claims, Colorado’s Unemployment Insurance Trust Fund quickly depleted and fell into a debt financed by loans from the U.S. Treasury. Though income to the fund through higher employer taxes will automatically increase, it will still take years to repay the loans and rebuild the reserve.
- As of January 6th, Colorado is one of 17 states currently reliant upon federal loans and has the 9th-greatest amount of money outstanding in both absolute and population-adjusted dollars.
- Before the pandemic, the UI Trust Fund had a reserve of $1.11b. By November, it had depleted by over $1.2b to a balance of -$114.35m. At the start of the next fiscal year, July 1, 2021, the fund is projected to be $1.08b in debt; this amounts to about $240 per adult Coloradan.
- Between FY20 and FY23, total employer taxes for the Trust Fund are projected to grow at an average annual rate of 22.3%. For the fund to be restored to its pre-pandemic solvency by 2028, five years after the end of the latest projection, contributions will have to exceed payments by an average of over $420m in each year after 2023.
The following graph displays the historical trends associated with continuing claims, benefits paid, and Trust Fund balance alongside Legislative Council Staff projections of the latter two.
This second graph displays the historical and projected figures which describe the amounts of taxes paid annually to the UI Trust Fund from employers and the total annual amounts of unemployment benefits paid from the fund.
Before March 2020, during a period of full employment in Colorado, the UI Trust Fund was stable and solvent at a reserve of over $1b. By the time continuing claims peaked in May, the fund had only $690m remaining. Since July, monthly benefit payments alone have exceeded fund balances. Total benefits are expected to have exceeded fund income during every month from April 2020 through January 2023; during that time, the fund will have depleted from its pre-pandemic level by about $2.12b. Until the Trust Fund recovers, Colorado’s unemployment insurance program will remain reliant upon federal funding.
“Dependent upon the timing, severity, and duration of the next recession, the [Unemployment Insurance] trust fund may again become insolvent and borrowing will be required to make legally obligated benefit payments. This will inflict substantial costs to employers in the form of various surcharges, administrative costs, and interest expenses. These will take effect at the same time the premium rate schedules shift to their highest levels thereby compounding the financial stress upon employers.” – CDLE Annual Report, 2019
- The Unemployment Insurance trust fund, from which unemployment benefits are paid, stands to go insolvent soon—likely before the end of June.
- When it does, should the current law remain effective, businesses statewide will be required to pay higher premium rates and be assessed additional insolvency surcharges to help compensate for the fund’s shortfalls. These together will total about $839,200,000 in 2021, an increase of over $300,000,000 from the current year.
- SB20-207, a proposed temporary change in rate-setting policy, would ease the private sector’s burden by over $100,000,000 in 2021, yet would lead to an increase of $800,000,000 or more by 2025.
- Under current law and economic forecasts, the UI trust fund could remain underwater for a decade while employer contribution rates continue to be set at highest level.
- An effective annual tax of just $100,000,000 upon Colorado’s businesses sustained over five years will cost the state up to 2,200 jobs.