After a decade of gridlock, Ohio eyes fix for 'insolvent' unemployment fund

COLUMBUS, Ohio -- The next recession could bankrupt Ohio’s unemployment fund—again.

Despite decades of warnings and federal bailouts, state lawmakers have been unable to agree on a long-term solution.

Now, two new proposals in the Ohio House are back on the table—one a modest increase for employers and employees, one a more aggressive 25% cut to benefits.

The goal is to shore up a fund that the federal government has considered insolvent for decades. A problem Ohio has known about and largely failed to fix.

“I had always assumed we would do one big, beautiful bill, if you will, that solved the problem for the foreseeable future,” said Rep. Bob Peterson, a Clinton County Republican. “But maybe we don’t. Maybe we do steps.”

Peterson is backing a modest proposal in House Bill 321. It would slightly increase what employers contribute and require modest payments (about $100 a year from someone earning $75,000) from employees who work for companies that take more out of the system than they pay in.

These changes would raise $49 million a year, according to the nonpartisan Legislative Services Commission.

But not everyone in Peterson’s party wants a Band-Aid.

House Bill 376 would take a more aggressive approach and cut the number of weeks jobless Ohioans can collect benefits from 26 to 20. A move estimated to save the system $154 million annually.

Peterson doesn’t oppose that idea, but it’s been repeatedly blocked by labor groups, especially in construction, where workers rely on unemployment to survive seasonal layoffs.

“How do we get around the weather,” asked Rep. Chris Glassburn, a North Olmsted Democrat, during a June committee hearing.

Democrats and labor leaders argue the real problem isn’t benefits: It’s that employers haven’t paid more into the system since the 1990s.

Wages have risen, but the employer tax base hasn’t.

“If one side of the ledger is a fixed amount of money and the other is rate-based, the maths diverge,” Glassburn said.

Fifty years of insolvency
The federal government has considered Ohio’s unemployment compensation fund insolvent since 1974.

That means the state hasn’t kept enough in reserves to cover a full year of benefits during a recession, as federal standards recommend.

Ohio’s fund holds $2 billion, which is 46% of what it needs to meet that benchmark, according to the U.S. Department of Labor’s 2025 trust fund solvency report.

“If we hit another downturn, that fund gets wiped out in six months,” said Rick Carfagna, a lobbyist for the Ohio Chamber of Commerce.

When that happens, borrowing from the federal government becomes the only option.

Ohio can’t default on unemployment payments, so when the fund ran dry during the Great Recession, the state borrowed $3.4 billion.

Ohio borrowed another $1.5 billion during the pandemic.

That fallback has become so routine that some question whether insolvency is the right word.

“It’s a known dependency,” Glassburn said. “It’s a known credit line that you can always call Mom and Dad for a loan.”

This also isn’t a new problem.

In 1989, a state study warned the fund would be insolvent under normal circumstances by 1998 unless lawmakers raised taxes or cut benefits.

In 1995, they bumped the taxable wage base, the portion of an employee’s wages taxed for unemployment insurance, to $9,000.

It hasn’t been raised since.

If Ohio’s base had kept up with inflation, we would be at $19,000 in today’s dollars, according to the Bureau of Labor Statistics’ inflation calculator.

While the federal minimum is $7,000, states can set their levels much higher:

Florida $7,000
Michigan $9,000
Indiana $9,500
Pennsylvania $10,000
New York $12,800
Colorado $27,000

HB 321 would raise Ohio’s wage base from $9,000 to $9,500.

Ohio’s Chamber of Commerce supports the idea, but Carfagna said any solution needs “buy-in” from labor.

“We’re willing to ‘self-inflict’ some pain on this, but only if we know there is going to be a sharing of that pain when it comes to revisiting benefits,” he said.

Even trimming the cap to 22 weeks would save the fund $68.4 million annually.

Carfagna also pointed out that business owners just stepped up to modernize Ohio’s antiquated unemployment system.

In 2021, the State Auditor’s Office determined that outdated technology contributed to “egregious customer service failures.”

In response, employers have agreed to pay $13.50 per employee for the next two fiscal years to improve efficiency, security and user experience.

But those fixes won’t address the system’s deeper weakness.

“Not a single penny of that is going toward solvency,” he said. “Which has been this long-festering problem that the state has failed to confront.”

Band-aid or overhaul?
After a decade of gridlock, lawmakers on both sides of the aisle are beginning to say it’s time to stop waiting for a perfect fix—and start doing what’s politically possible.

“Sometimes change is evolutionary, not revolutionary,” Rep. Sean Brennan, a Parma Democrat, said.

He characterized HB 321 as a placeholder bill that could grow or shift as labor and business continue to negotiate what they can agree upon.

“I like that approach,” Brennan said. “Giving both sides the deference to find a solution that works.”

Brennan isn’t the only one who sees HB 321 as a foundation. Glassburn said it could become a model for long-term reform.

“They’re creating a model for how this could be solved every two years,” Glassburn said. Instead of tying the taxable base to inflation, each General Assembly could raise it.