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Opinion: Using federal COVID stimulus dollars to backfill Colorado’s unemployment insurance trust fund is a bad idea

Instead of stimulating the economy a year from now, we should use the money to stimulate the economy today.

President Joe Biden signs the American Rescue Plan, a $1.9 trillion COVID-19 relief package, at the White House on Thursday, March 11, 2012 (White House via YouTube)

Imagine getting an interest-free loan from a bank for that coffee shop you’ve always dreamed about opening and another $50,000 to jump start your business. Money for that espresso machine, to hire talented baristas — whatever you need to hit the ground running. What would you do with it? 

Whatever you might choose, one thing you probably wouldn’t do is give the bank back $50,000 to prepay your interest-free loan before you serve your first cup. It wouldn’t make sense. 

But that’s exactly what officials in many states, including Colorado, are thinking about doing with the much-needed federal stimulus dollars coming from the American Rescue Plan — the $1.9 trillion COVID relief bill recently signed into law by President Biden. 

Kathy White

By replenishing their unemployment insurance (UI) trust funds with federal stimulus dollars — money intended to stimulate the economy — proponents want to lower the premiums that employers pay for unemployment insurance. This would be the least efficient use of stimulus dollars. 

UI has been the country’s first response to the economic crisis caused by COVID-19, garnering bipartisan support for robust federal aid to unemployed workers and struggling businesses throughout the crisis. The American Rescue Plan doubles down on the investment in UI with continued benefits to more workers, aid to states for administration, and, most notably, interest-free loans to pay claims through September 6, 2021. 

Right now, the federal government is footing the bill for many of the unemployment benefits that out-of-work Coloradans are receiving, and regular unemployment benefits, usually pre-paid by employers through premiums, are currently covered by interest-free federal loans. 

Putting stimulus money into the trust fund now is just like using that jumpstart money in the scenario above to prepay your zero-interest loan, instead of using it to get customers in your door. 

If the concern is premium rates going up for employers desperately holding on for the boom we know is coming, and a desire to give those employers a break from premiums they’ll pay next month, it would be better to lower their premiums now by adjusting the current rate schedule or offering a credit to them. 

The rates employers pay this year are always based, in part, on last year’s trust fund balance. If we want to help struggling businesses right now, then postponing the rate increase makes more sense then giving federal money back to the federal government so that we move to a lower rate schedule next year. 

TODAY’S UNDERWRITER

Colorado could also use federal money to shore up state funds that pay for employer supports for training and technology. The relief bill gives $2 billion to states to help with technology system upgrades, fraud prevention, or enhancing employer and worker customer experience. These uses would greatly benefit Coloradans leaning on UI right now. 

Many economists agree that the economy will come roaring back as more people are vaccinated. There’s a lot of pent-up consumption, which means 2022 will be an easier time for workers and businesses to think about rebuilding the trust fund and shoring up the program that has proven critical through the pandemic. 

Instead of stimulating the economy a year from now, we should use stimulus money to stimulate the economy today. Businesses will benefit more quickly and more sustainably if Colorado uses money from the federal relief bill to get people vaccinated and back to work, get kids back in school, and all of us spending money at our favorite businesses again. 


Kathy White is the deputy director of the Colorado Fiscal Institute, a nonpartisan, nonprofit organization that provides data about fiscal and economic issues affecting Colorado, and advocates for policies that promote equity and widespread prosperity.


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