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Was Delaware’s unemployment system prepared for coronavirus crisis?

From the News Journal

Facing more than 90,000 initial jobless claims since the coronavirus pandemic hit Delaware, state officials estimate they will run out of unemployment funds around the end of June, when they plan to start borrowing from the federal government to pay out benefits.

Like other states, Delaware has been draining its unemployment insurance trust fund during the pandemic-triggered economic downturn. But unlike more than half of states, Delaware didn’t enter the crisis prepared.

Instead, Delaware is one of 22 states and territories whose unemployment trust funds weren’t funded to a level of solvency that the U.S. Department of Labor says is adequate to weather a recession. The state had close to $173 million in its unemployment fund this January.

Delaware Secretary of Labor Cerron Cade said the way the state taxes employers has hindered the unemployment fund’s growth.

Experts and the federal government recommend building up the state’s unemployment reserves while the economy is strong, and drawing on the funds during recessions. Unemployment funds are maintained with taxes employers pay on wages for workers.

Nineteen states increase the amount employers must pay into the unemployment fund as wages grow.

But in 2013, Delaware lawmakers mandated that the higher the unemployment insurance fund, the lower the tax burden on businesses. That means the fund grows at a slower rate the closer it gets to solvency.

“On the back end of that, as the trust fund begins to get to a lower balance, we start taxing employers more,” Cade said. “During a time period when you want employers to hire more, why would you make it more costly for them to hire someone?”

Cade said the state was considering other formulas to administer the unemployment insurance tax.

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