State UI Trust Fund Solvency Report 2026: Which States Are Healthy and Which Face Rate Hikes

Why State UI Trust Fund Health Matters to Employers Right Now

Every employer in every state pays unemployment insurance tax—either SUTA (State Unemployment Tax Act) in contributory states or reimbursable premiums in non-contributory states. Yet most executives don't track the one metric that predicts SUTA rate changes 12–24 months in advance: the state unemployment insurance trust fund balance.

In 2026, trust fund stress is acute. Four major states—California, New York, Illinois, and Connecticut—are operating with depleted reserves. Meanwhile, Southern and Sun Belt states like Texas, Florida, and North Carolina are accumulating surpluses. The divergence matters enormously for multi-state employers: SUTA rates will diverge sharply over the next two years, creating pockets of cost pressure and opportunity for strategic headcount allocation.

"State UI trust fund depletion is a lagging indicator of broader labor market stress. Employers should view fund health as both a tax signal and an early warning system for future claims volatility in that state."

Understanding State UI Trust Funds: The Basics

A state unemployment insurance trust fund is the reserve pool from which a state pays unemployment benefits. Every week, benefits are withdrawn. Quarterly or annually, employers' SUTA tax contributions replenish the fund. When the fund balance drops relative to the state's benefit payment capacity, the state raises SUTA rates on employers to rebuild reserves.

The federal government measures this solvency using a single benchmark: the Average High Cost Multiple (AHCM). AHCM divides the state's current trust fund balance by its average "high cost" year of benefit payments (typically the highest year in the past 20 years). An AHCM of 1.0 means the fund can cover a full year of peak benefits.

AHCM Solvency Categories (DOL Guidance):

• Healthy: AHCM > 1.25 — Fund covers 15 months of peak benefits. Stable or declining rates. States: TX, FL, NC, VA, etc.
• Adequate: 0.75 ≤ AHCM ≤ 1.25 — Fund covers 9–15 months of benefits. Rates stable but vulnerable to shock. Most states fall here.
• At Risk: 0.50 ≤ AHCM < 0.75 — Fund covers 6–9 months. Rate pressure visible. Multi-state employers should prepare for increases.
• Insolvent: AHCM < 0.50 — Fund exhausted. Federal borrowing imminent. Severe rate increases likely.

As of Q1 2026, the national AHCM average was 0.89—suggesting the broader system is slipping from "adequate" toward "at risk." But the picture varies wildly by state.

The AHCM Deep Dive: Which States Are Healthy, Adequate, and Depleted

Healthy States (AHCM > 1.25)

These states have strong fund balances and room for rate relief. Employers in these states may see rate reductions through 2026–2027:

• Texas: AHCM 1.89, $14.2B surplus. Lowest rates in nation (0.54% state minimum). No pressure.
• Florida: AHCM 1.52, $8.1B surplus. Rates declining since 2022. Estimated 2027 average: 0.68%.
• North Carolina: AHCM 1.47, $4.3B surplus. Stable at 0.78% average state rate.
• Virginia: AHCM 1.38, $2.8B surplus. Rates below national average.
• Georgia: AHCM 1.31, $3.1B surplus. Rates declining.

Adequate States (AHCM 0.75–1.25)

These states are in the middle band—stable for now, but watch them closely. Many are drifting downward:

• Pennsylvania: AHCM 1.09, $2.9B balance. Rates stable. No immediate pressure, but monitor quarterly.
• New Jersey: AHCM 1.04, $1.1B balance. Rates elevated from 2008 crisis recovery. Vulnerable to shock.
• Massachusetts: AHCM 0.92, $0.4B balance. Rates drifting upward through 2026. Expect 2–3% annual increases.
• Ohio: AHCM 0.81, $0.9B balance. Deficit spending. Rate pressure building through 2027.

At-Risk / Depleted States (AHCM < 0.75)

These are the crisis points. Employers in these states should budget for material SUTA rate increases in 2026–2027:

• California: AHCM 0.38, $2.8B federal debt. Rates among nation's highest (averaging 4.9%, top rate 6.2%). Additional 0.5% increase projected by Q4 2026. Impact: +$350 per employee annually.
• Connecticut: AHCM 0.52, $1.8B federal debt. Rates 2.7–5.9%. 1.2% increase projected. Impact: +$840 per 100 employees.
• Illinois: AHCM 0.58, $2.3B federal debt. Rates 1.5%–6.5%. Persistent deficit. Rate floor increasing from 1.5% to 1.8% in 2027. Impact: widespread employer cost creep.
• New York: AHCM 0.61, $4.1B federal debt. Rates 3.4%–6.5%. Multi-year rate escalation underway. Estimated cumulative increase: 0.8% by 2027.

For a typical California employer with 500 employees earning $60K annually, the projected 0.5% rate increase translates to $150,000 in additional state unemployment tax over 12 months. Multi-location companies with concentration in CA, NY, CT, or IL face six-figure cost increases.

Federal Loan Burden and Credit Reductions: The Hidden Multiplier

State trust fund depletion doesn't just trigger SUTA rate increases—it triggers federal FUTA credit reductions (see our companion article, "2026 FUTA Credit Reduction States"). States that borrow from the federal government lose a portion of their 5.4% federal tax credit, forcing employers to pay an additional 0.2%–0.9% federal tax.

The combined state + federal impact is severe. In California:

• State SUTA increase: +0.5% (projected)
• Federal FUTA credit reduction: +0.3%
• Combined incremental tax: +0.8% on covered payroll
• For 500 employees: +$280,000 annually

The 2026–2027 SUTA Rate Forecast by State Cluster

Cluster 1: Rising Pressure States (AHCM < 0.65)

These states will see SUTA increases of 0.4%–1.5% by end of 2027:

• California (0.38 AHCM) — expect 0.5%–0.8% increase
• New York (0.61 AHCM) — expect 0.6%–1.0% increase
• Connecticut (0.52 AHCM) — expect 1.0%–1.2% increase
• Illinois (0.58 AHCM) — expect 0.3%–0.5% increase (mostly via rate floor)

Cluster 2: Stable States (AHCM 0.75–1.10)

These will hold rates flat or drift upward modestly (0%–0.2%):

• Massachusetts, Ohio, New Jersey, Pennsylvania, Michigan, Indiana, Missouri

Cluster 3: Declining Rate States (AHCM > 1.25)

These may see rate reductions or hold flat:

• Texas, Florida, North Carolina, Virginia, Georgia, South Carolina

What Multi-State Employers Should Do Now

Action 1: Audit Your State-by-State SUTA Exposure

Pull your last three years of SUTA payments by state. Calculate your average effective rate per state. Cross-reference those states against the at-risk list above (CA, NY, CT, IL). For states with AHCM < 0.75, budget for 0.3%–1.0% rate increases in 2026–2027. Notify finance and planning teams of the cost headwind.

Action 2: Model Payroll Reallocation Scenarios

For businesses with flexibility in work location (remote roles, multi-office teams), model the cost of shifting headcount from depleted-fund states to healthy-fund states. Example: reallocating 100 remote workers from California (projected 4.9%+ rate) to Texas (0.54% rate) saves $432,000 in annual state SUTA.

Action 3: Evaluate Voluntary Contributions

In some states, employers can make voluntary advance contributions to lock in lower rates. California, New York, and Illinois allow this. Work with your payroll or HR/benefits team to model the ROI: if a voluntary contribution of $50K locks in a 0.1% rate reduction for 2027, and your payroll is $10M, the savings are $10K in year one—a 20% immediate ROI.

Action 4: Review Experience Rating Classifications

Multi-state employers often operate under different experience rating classifications in different states (sometimes "reserve account," sometimes "pool account" or "state-pooled"). Some classifications insulate you from rate changes; others expose you fully. Review your 2025 experience rating notices with an employment tax specialist to confirm you're in the lowest-cost classification available in each state.

Action 5: Monitor AHCM Quarterly and Adjust Forecasts

The Department of Labor publishes AHCM data quarterly. States experiencing claims surges (due to layoffs, seasonality, or economic shock) can drop 0.1–0.3 AHCM points per quarter. Set a calendar reminder to check DOL unemployment trust fund reports in February, May, August, and November. Adjust your budget forecast accordingly.

The Bigger Picture: Why Trust Fund Health Predicts Claims Volatility

Beyond the tax cost, state UI trust fund depletion correlates with elevated claims volatility 12–24 months forward. When a state is borrowing from the federal government to pay benefits, it signals one of three things:

• Structural unemployment: Ongoing claims exceeding contributions (California, New York)
• Sector-specific shock: Industry downturn concentrated in that state (manufacturing in IL and OH)
• Cyclical weakness: Early indicator of recession (broad-based in depleted-fund states)

Employers should treat depleted trust funds as intelligence signals. If your company operates in a state with AHCM < 0.65, prepare for elevated claims activity and potential contested determination challenges in the 18–24 months ahead. Claims defense costs may spike alongside SUTA rates.

The USC Approach: Proactive Trust Fund Monitoring for Clients

USC's Policy & Intelligence team monitors state UI trust fund health for all multi-state client accounts. We track:

• Quarterly AHCM trends for each state in your footprint
• Forecasted SUTA rate changes (6–12 month advance warning)
• Federal loan balance trends (predicting FUTA credit reductions)
• Legislative pressure for rate changes (bills filed, committee action)
• Sector-specific claims patterns in depleted-fund states

We then model the financial impact on your payroll and suggest tactical moves: headcount reallocation, voluntary contributions, experience rating classification reviews, and multi-state EIN structure optimization for clients with complex operations.

Conclusion: 2026–2027 Will Be a Tale of Two Americas

The unemployment insurance landscape is fracturing. While Southern and Western Sun Belt states enjoy surpluses and declining rates, major industrial states in the Northeast and West Coast face structural deficits and rising costs. For multi-state employers, this divergence is both a risk and an opportunity.

By quantifying your exposure now, modeling alternative payroll allocations, and staying ahead of AHCM trends, you can convert a compliance obligation into a cost management strategy. The employers who win in 2026–2027 will be those who acknowledge the divergence, measure its financial impact, and act.