Summary: Pursuant to a congressional request, GAO assessed the potential impact of a severe recession on the financial status of the Unemployment Insurance (UI) system.
GAO found that: (1) the UI system appears to be inadequate to handle a severe recession; (2) the Department of Labor's (DOL) model indicates that a severe recession in 1991 would result in 22 states having to borrow an estimated $17.4 billion between 1991 and 1995 to sustain their programs; (3) such a situation could result in such state actions as reduced UI eligibility and increased payroll taxes; (4) an increased taxable wage base would be a step toward a forward-funded UI program, but would not result in immediate restoration of state funds; (5) under the DOL model, states would need to borrow $3 billion less from the federal loan account and would owe $4.2 billion less after 5 years, if the taxable wage base were increased; and (6) the DOL model indicates that an increase in the taxable wage base coupled with reduced eligibility would produce similar but less dramatic results.
