The Show-Me Institute recently released a guide for spending Missouri’s stimulus money that emphasizes growing the economy, not the government. One idea mentioned is replenishing the Unemployment Insurance (UI) Trust Fund. However, there is a deadline that policymakers ought to be aware of.
The state pays unemployment benefits from this fund, and the COVID-19-induced recession meant that the state was dipping into this fund more than normal. When the balance of the UI Trust Fund is too low, an increase in tax contribution rates on business owners is triggered.
As stated in the spending guide:
States can replenish their UI Trust Funds up to the difference between the balance on January 27, 2020 ($1.054 billion) and May 17, 2021 ($637 million). Thus, Missouri lawmakers should make a one-time contribution to the state UI Trust Fund of $417 million to prevent small businesses from facing hikes in their UI taxes and to keep the fund balance healthy in case of heavy future use.
A tax increase for businesses is the last thing anyone needs right now. Businesses pass on higher taxes to customers, which in turn means higher prices and costs for everyone.
With the finalization of the rules governing State and Local Fiscal Recovery Funds, there is now a tighter timeline for spending stimulus funds on replenishing the UI Trust Fund. If states use funds to replenish their UI trust funds after April 1, 2022, they will be subject to a maintenance of effort requirement for UI benefits through 2024. This means that if states use stimulus funds to supplement UI funds after April 1, they would not be allowed to take any action to reduce weekly unemployment benefits or the number of weeks of benefits available until after 2024.
As Jared Walczak of the Tax Foundation wrote in a great summation piece:
Many states may have no desire to do this. Others may anticipate the need for an adjustment. Regardless, state lawmakers may be wary of having their hands tied by the federal government. But there is a grace period, which could be a motivation for states to act fast.
The bottom line is that if Missouri lawmakers want to replenish the UI Trust Fund without strings attached, they need to act quickly.
