6 Conclusions
Overall, the fiscal strength of state UI programs at the end of 1996
was weaker than it had been at the end of 1989, just before the onset of
the most recent recession. The national reserve ratio (high-cost) multi-
ple dropped from 0.87 at the end of 1989 to 0.64 at the end of 1996.
The economic recovery of the 1990s has lasted several years, and it
appears that trust fund reserves will not be rebuilt to 1989 levels, or
that rebuilding will occur slowly over many years. States are more at
risk for insolvency in the late 1990s than they were in 1990. A repeti-
tion of widespread and large-scale borrowing of the past is a distinct
possibility.
It might be argued that the states now have more flexible financing
than they had two decades ago. However, the research summarized in
Chapter 2 does not support such an assertion. UI programs continue to
need to maintain large trust funds in anticipation of recessions.
The literature review in Chapter 2 cites only three studies on flexi-
ble financing. Clearly, more studies are required. Many states are
likely to have low reserve positions for the immediate future (even
without a recession in 1998 or 1999), making further study of flexible
financing all the more important. Support from the U.S. Department of
Labor on this important question would seem warranted.
States with indexed tax bases clearly show stronger trust fund posi-
tions than nonindexed states. Between 1986 and 1996, the indexed
states maintained their taxable wage proportions and tax capacity, but
nonindexed states had declines in both. During the next recession, it
would be wise to note the borrowing patterns of states according to
their indexing arrangements. It appears that the states most at risk of
needing large loans are those with indexed maximum weekly benefits
but nonindexed tax bases.
Three states compensate for UI trust fund indebtedness by issuing
state debt instruments. The interest rates for such financial instruments
were lower than for Title XII loans, but it is not clear that these states
realized any savings on interest costs. For each of the three, the size of
the state debt issue exceeded the amount needed for repaying Title XII
loans. Each state later exercised call features for some of its long-term

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