Alabama is a Leader in Unemployment Reform

The state of Alabama is famous for many things, among them miles of Gulf shoreline, a particularly heated college football rivalry, and great barbeque.

But unemployment program integrity should also be added to that list, because Alabama is quickly becoming a leader in implementing and maintaining an unemployment system that is efficient and secure.

Alabama’s Solutions to Common UI Program Problems

State unemployment insurance (UI) programs are meant to be a safety net—a temporary stopgap measure for people who have lost a job to support them while they search for work.

With two reforms enacted over the past several years, Alabama is leading by example in how to improve unemployment program integrity and ensure its solvency through two key reforms: indexing and stringent cross-checks.

Unemployment Indexing

Unemployment is not supposed to be an endless tunnel of benefits with no end in sight—especially when work is plentiful—but it often becomes just that. The longer a person remains on UI, the more difficult it is to get a job. Not tying the duration of benefits to the unemployment rate keeps people dependent on welfare rather than cycling them back into the workforce so they can support themselves and their families.

Alabama’s Solution: Connecting benefits to the state’s unemployment rate—unemployment indexing—is the solution. In 2019 the legislature passed SB 193, sponsored by Sen. Arthur Orr (AL-3), a champion of unemployment program integrity. This reform shortened the maximum time a person is eligible to receive unemployment benefits to 20 weeks and tied specific benefit duration to the state’s unemployment level. When unemployment is at or below 6.5 percent, benefit duration is 14 weeks. Above 6.5 percent, an additional week is added for each .5 percent in the unemployment rate.

Program Integrity

State unemployment programs are also often jeopardized by sheer waste. Because the system often lacks assurances that only the eligible are enrolled, millions are routinely paid out to those who are ineligible or to those who are intentionally trying to defraud the system. Millions of taxpayer dollars are wasted across the country every year when unemployment benefits are sent to people who have applied for benefits in multiple states, are incarcerated, are deceased, or are simply no longer eligible because they’ve found work.

Alabama’s Solution: Sen. Orr introduced SB 373, another UI reform bill during the 2021 legislative session. The Unemployment Insurance Program Integrity Act of 2021 was signed into law by Gov. Kay Ivey in May 2021 and will put in place more stringent requirements to ensure only those eligible are receiving benefits.

The law puts in place a standard for weekly crosschecks of the state’s unemployment rolls to the National Directorate of New Hires to verify eligibility. It also requires the state to recover improper payments, and the Department of Labor to issue an annual report to the legislature on fraud detection and prevention measures, and on the amount of improper payments recovered.

When it comes to UI reform, other states should take note

The pandemic has shown just how crucial it is for states to reform their UI programs. In early 2020, states collectively had nearly $75 billion in their unemployment trust funds. By November 2021, they were $9 billion short—a plummet of nearly 113 percent.

Such reforms have already proven to help Alabama immensely. The state only saw its trust fund decrease by 12 percent, even with the increase in benefits brought on by the pandemic, and the state has recovered 90 percent of the jobs lost since the start of the pandemic. Meanwhile, other states went in the red and had to raise taxes in order to meet obligations, hurting families and businesses alike. Mississippi, on the other hand, has just passed a bill out of their House of Representatives which will eliminate their income tax. That bill is headed to the Senate and expected to be signed into law this session.

Other states should take note. Those that aren’t prioritizing program integrity are only leaving themselves with fewer resources for those who have no other option than to depend on this safety net—and hampering their state’s opportunities for economic growth.