As of April 1, 2010, 34 of the 53 state trust funds have outstanding loans totaling $38.9 billion from the federal government to pay benefits, and as of the end of 2009 no state had enough reserves to cover 12 months of benefits at historically high rates, GAO says.

The GAO says long-standing UI tax policies and practices in many states over 3 decades have eroded trust fund reserves, leaving states in a weak position prior to the recent recession. GAO says that most state taxable wage bases have not kept up with increases in wages, and “many employers pay very low tax rates on these wage bases.” To provide incentives for states to build up and maintain stronger UI trust fund reserves, GAO says Congress should consider raising the FUTA taxable wage base from its current level of $7,000 and indexing this base to average annual wages, and to consider measures to ameliorate the potential increase in the tax burden on employers, such as lowering the FUTA statutory tax rate or increasing the FUTA tax credit. “Enacting such measures to take effect when the current economic situation improves would create more robust funding in the future by encouraging states to broaden the revenue base for UI funding and maintain a consistent base relative to wages,” GAO says.