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The Unemployment Trust Fund (UTF): State Insolvency and Federal Loans to States Although states have a great deal of autonomy in how they establish and run their unemployment insurance programs, federal law requires states to pay Unemployment Compensation (UC) benefits promptly as provided under state law. During some recessions, current taxes and reserve balances may be insufficient to cover state obligations for UC benefits. States may borrow funds from the federal loan account within the Unemployment Trust Fund (UTF) to meet UC benefit obligations. This report summarizes how insolvent states may borrow funds from the UTF loan account to meet their UC benefit obligations.