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U.S. DEPARTMENT OF LABOR
Employment and Training Administration
Washington, D. C. 20210

CLASSIFICATION

UI

CORRESPONDENCE SYMBOL

TEURA

ISSUE DATE

February 6, 1986

RESCISSIONS

None

EXPIRATION DATE

February 28, 1987

DIRECTIVE

:

UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 14-86

 

TO

:

ALL STATE EMPLOYMENT SECURITY AGENCIES

 

FROM

:

BARBARA ANN FARMER
Acting Administrator
for Regional Management

 

SUBJECT

:

Balanced Budget and Emergency Deficit Control Act of 1985, (Title II of P.L. 99-177)

  1. Purpose. To advise State agencies of the provisions of Title II of the Balanced Budget and Emergency Deficit Control Act of 1985 (P.L. 99-177) which concern unemployment compensation; to provide suggested draft legislation for amending State extended benefit laws where appropriate; and to notify States of reductions in Federal reimbursements for extended benefits for FY 1986 which will take effect March 1, 1986.

  2. References. P.L. 99-177; Conference Report No. 99-433 (December 10, 1985); Draft Language to Implement the Employment Security Amendments of 1970--H.R. 14705.

  3. Background. On December 12, 1985, the President signed the Balanced Budget and Emergency Deficit Control Act of 1985, P.L. 99-177. This Act is better known as the Gramm-Rudman-Hollings Act.

    Title II of P.L. 99-177, which is designed to achieve a balanced budget by FY 1991, establishes progressively lower budget deficit targets for the next six fiscal years. The law directs the President and the Congress to propose and enact budgets which do not exceed these targets. For any fiscal year in which it is anticipated (based on forecasts made by the Congressional Budget Office (CBO) and Office of Management and Budget (OMB)) that the deficit targets have not been met through the standard legislative process, the President is directed to issue an order, in accordance with a report issued by the Comptroller General, reducing outlays in each financial account in the Federal budget by an across-the-board percentage sufficient to meet the deficit target. This order is called a sequester order." Unless specifically exempted by law, each financial account in the Federal budget will be subject to sequestering.

    Following is a discussion of the Conference Report on P.L. 99-177 and provisions in the law related to unemployment compensation. Also included is a discussion of options available to States for handling UI budget items which may be reduced by the sequestering of Federal funds. In the case of extended benefits, draft language is provided for States which elect options requiring changes in State law. In addition, Section 9 below provides information on reductions in the Federal share of extended benefit reimbursements for FY 1986 which will take effect March 1, 1986.

  4. Conference Report on P.L. 99-177. Congressional intent regarding the sequestering of unemployment benefits and administrative expenses is contained in the Conference Report on P.L. 99-177. The Conference Report also summarizes the basic effects of P.L. 99-177 on unemployment compensation programs and administrative funding. The Conference Report reads as follows:

    IV. TREATMENT OF PROGRAMS

    *    *    *    *   *

    j. Unemployment Program

    House Amendment

    The House Amendment provides that regular State unemployment benefits, the State share of extended unemployment benefits, benefits paid to former Federal employees and former members of the armed services, and loans and advances to the State and Federal unemployment accounts are not available for sequester. The Federal share of extended benefits and Federally paid benefits and administrative expenses are fully available for sequester.

    Senate Amendment

    The Senate-amendment follows the House amendment, but provides that benefits paid to former Federal employees and former members of the armed services are fully available for sequester.

    Conference Agreement

    The Conference Agreement follows the House amendment. It also provides that States may, without penalty, reduce their share of Federal-State extended unemployment benefits if the Federal share of benefits is reduced by a sequester order. (Conference Report 99-433, at 85, 91. )

    The Conference Report on P.L. 99-177 also includes information on how sequester orders will be applied. The report reads states:

    III.  THE PRESIDENTIAL ORDER

    *    *    *    *   *

    d. Sequestration by Programs, Projects, and Activities
    *    *    *    *   *

    Conference Agreement

    The conference agreement provides that sequestration shall apply at the program, project, or activity level as set forth in the most recently enacted applicable appropriations acts and accompanying committee reports for the program, project, or activity involved, including joint resolutions providing continuing appropriations and committee reports accompanying acts referred to in such resolutions. For programs which are not defined at the program, project, or activity level, sequestration would be applied at the account level. (Conference Report 99-433, at 78, 83.)

  5. Items Exempt From Sequestering.  Section 256(h)(1) of P.L. 99-177 identifies three unemployment compensation accounts which are exempt from reductions under a sequester order. These are:

    1. Any benefits payable from a State unemployment fund, including regular benefits, additional benefits, and extended benefits, as defined in Section 205 of the Federal-State Extended Unemployment Compensation Act of 1970 (State accounts in the Federal Unemployment Trust Fund).

    2. Loans and advances to State and Federal unemployment accounts (Title XII loans to States from the Federal Unemployment Account (FUA) and, when needed, advances to FUA to fund loans to States).

    3. UCFE and UCX benefits (payments from the Federal Employees Compensation Account).

  6. Effective Dates of Sequester Orders. The process for issuing sequester orders is contained in Sections 251 and 252 of P.L. 99-177. Each year on August 20 (or January 15, in the case of FY 1986), OMB and CBO must jointly report to the Comptroller General whether the estimated budget deficit for the coming fiscal year will meet the required deficit target. If the projected deficit exceeds the target by more than $10 billion (except for FYs 1986 and 1991 when the allowable excess is zero), the Directors of OMB and CBO must also compile a list of across-the-board cuts needed to bring the budget into compliance. (Section 251(b).) Based on this report, on August 25 of each year (January 20 for FY 1986), the Comptroller General must report to the President and Congress on the specific amounts or percentages by which each account must be reduced to eliminate the excess deficit. (Section 251(b).) In FY 1986 the maximum allowable reduction is $11.7 billion.

    Following the submission of the Comptroller General's report, on September 1 (or February 1 in the case of FY 1986), the President must issue an initial order to sequester. The sequester order must provide for the reductions in the manner specified in Section 251(a)(3), must incorporate the provisions in the Comptroller General's report (Section 251(b)), and must be consistent with the report in all respects (Section 251(a) (3)) .

    Amounts sequestered under an initial order of the President must be withheld from obligation pending issuance of a final order. During the month of September, Congress has the opportunity to take legislative action to reduce the excess deficit. On October 5, the CBO and OMB must submit a revised report to the Comptroller General which indicates whether, and to what extent, Congressional action or other economic events occurring during this period have affected the excess deficit forecast. On October 10, the Comptroller General must submit a revised report to the President indicating, in light of the revised CBO-OMB report, any adjustments to the initial sequester order necessary to meet the deficit target. (No revised reports are provided for in FY 1986.)

    The final sequester order will be issued by the President on October 15 of each fiscal year (except for FY 1986 when the final order will be issued March 1). The final order will include the same reductions as the initial order, adjusted as necessary to account for any changes in the revised Comptroller General's report. The final order will supersede the initial order and will be effective on the day it is issued. Section 252(b).

  7. Effect of P.L. 99-177 on Extended Benefits.  Section 251(a)(4)(B) of P.L. 99-177 states that the Federal share of Federal-State Extended Unemployment Compensation (EB) will be subject to sequestering. Section 256(h)(2) authorizes States to reduce EB weekly benefit amounts by a percentage which does not exceed the percentage by which the Federal share of EB is reduced. Any such reduction in EB weekly benefit amounts will not be considered a failure to conform or comply with Section 3304(a)(11) of the Internal Revenue Code of 1954.

    States have two options for handling the sequestering of the Federal share of EB:

    1. The State may continue to pay the full EB weekly benefit amount, absorbing from State unemployment trust funds any reduction in Federal reimbursements.  If a State decides to choose this option, it should review its law to see if any changes are needed.

    2. The State may reduce the EB weekly benefit amount by a percentage which does not exceed the percentage by which the Federal share of EB has been reduced. For example, if a claimant's EB weekly benefit amount is $100, the Federal reimbursement would normally be $50 and the State share would be $50. If the $50 Federal reimbursement is reduced by 30% under a sequester order (a reduction of $15), the State has the option of reducing the claimant's $100 EB weekly benefit amount by a maximum of 30% (a total reduction of $30). Alternatively, even if the Federal reimbursement is reduced by 30% ($15), the State may choose to reduce the $100 EB weekly benefit amount by only 15% ($15), which would account only for the reduction in the Federal reimbursement. Under this 15% reduction, the EB weekly benefit amount would be $85 (consisting of a $50 State share and a $35 Federal reimbursement). In any event, under this example of a 30% reduction in the Federal reimbursement, the State could choose to reduce the claimant's EB weekly benefit amount from $100 to any amount not less than $70.

    If a State chooses option (b), the State law must be amended to allow for the reduced payments. Following is draft language which will allow States to reduce EB weekly and total benefit amounts by a percentage not to exceed the percentage of reduction in the Federal share of EB. This draft language originally was provided to States as part of the Draft Language to Implement the Employment Security Amendments of 1970--H.R. 14705. Suggested changes to the original draft language are underlined and various explanatory notes are included.

    EXTENDED BENEFITS PROGRAM

    Section ______(c)(2)

    WEEKLY EXTENDED BENEFIT AMOUNT

    The weekly extended benefit amount payable to an individual for a week of total unemployment in his eligibility period shall be an amount equal to the weekly benefit amount 1 payable to him during his applicable benefit year. For any individual who was paid benefits during the applicable benefit year in accordance with more than one weekly benefit amount,1 the weekly extended benefit amount shall be the average of such weekly benefit amounts.1

    Provided, That for any week during a period in which Federal payments to States under section 204 of the Federal-State Extended Unemployment Compensation Act of 1970 are reduced under an order issued under section 252 of the the Balanced Budget and Emergency Deficit Control Act of 1985, the weekly extended benefit amount payable to an individual for a week of total unemployment in his eligibility period shall be reduced by a percentage equivalent to the percentage 2 of the reduction in the Federal payment. Such reduced weekly extended benefit amount, if not a full dollar amount, shall be rounded to the nearest lower full dollar amount. 3

    Section _____(e)
    TOTAL EXTENDED BENEFIT AMOUNT

    The total extended benefit amount payable to any eligible individual with respect to his applicable benefit year shall be the least of the following amounts:

      (1) fifty percent of the total regular benefits (including dependents' allowances) 4 which were payable to him under this Act in his applicable benefit year;

      (2) thirteen times his weekly benefit amount, 5 (including dependents' allowances) 4 which was payable to him under this Act for a week of total unemployment in the applicable benefit year; or

      (3) 6 thirty-nine times his weekly benefit amount, 5 (including dependents' allowances) 4which was payable to him under this Act for a week of total unemployment in the applicable benefit year, reduced by the total amount of regular benefits which were paid (or deemed paid) to him under this act with respect to the benefit year.

    Provided, 7 That the amount so determined shall be reduced by the total amount of additional benefits paid (or deemed paid) to the individual under the provisions of section _____ 8 of this Act for weeks of unemployment in the individual's benefit year which began prior to the effective date of the extended benefit period which is current in the week for which the individual first claims extended benefits.

    Provided further, That during any fiscal year in which Federal payments to States under section 204 of the Federal-State Extended Unemployment Compensation Act of 1970 are reduced under an order issued under section 252 of the Balanced Budget and Emergency Deficit Control Act of 1985, the total extended benefit amount payable to an individual with respect to his applicable benefit year shall be reduced by an amount equal to the aggregate of the reductions under section ____ 9in the weekly amounts paid to the individual.

  8. Potential Effect of Changes in State's EB Law on State Charging Provisions. The Federal reduction in EB reimbursement may have an impact on State law provisions for charging EB. Most States which charge EB provide that 50 percent of the EB weekly benefit amount will be charged to the appropriate employer's account. The Federal reduction may impact the percentage of EB actually charged to employer accounts. For example, if the State law is not amended to reduce EB weekly benefit amounts to the full extent permitted by Section 256(h)(2) of P.L. 99-177, the State share of EB will be more than 50 percent.

    Therefore, if the State law provides that a specific percentage of EB will be charged to a contributing employer's experience rating account (such as 50 percent), the State may wish to consider amending its law to provide that the full State share of EB payments made rather than a fixed percentage will be charged to the employer's account. This would ensure that the entire amount of the State share is charged. Sharable regular compensation must, of course, continue to be fully charged as at present. (See 20 CFR 615.10(a).)

    For reimbursing employers, 20 CFR 615.10 (b) requires that "not less than 50 percent of any sharable [regular and extended] compensation" shall be charged to them. Unless the State law is amended to reduce EB weekly benefit amounts to the full equivalent of the percentage reduction in Federal reimbursements, the State law will need to be amended to assure that the full amount of the State share of any EB or sharable regular payment is charged to the reimbursing employer.

  9. Reductions in Federal Share of Extended Benefits for FY 1986. As a result of P.L. 99-177, a percentage of Federal reimbursements for Federal-State Extended Unemployment Compensation (EB) (including sharable regular compensation) paid during FY 1986 will be sequestered. The Federal reimbursement will be reduced by 6.1 percent for payments made on or after March 1, 1986. For this purpose only, payments will be considered made on the day checks are dated.

    The 6.1 percent reduction will apply to all Federal EB reimbursements (sharable regular and sharable extended benefits) regardless of whether the week of unemployment for which the payment is made occurred before or after March 1, 1986. The reduction will be effective through FY 1986. This means it will apply to all payments made by checks dated from March 1, 1986 through September 30, 1986.

  10. Effect of P.L. 99-177 on Other Federal Programs. Only those programs listed in Section 256(h)(1) of P.L. 99-177 are exempt from possible sequestering. These include only regular, extended, and additional benefits payable under State law, and UCFE and UCX payable from the Federal Employees Compensation Account in the Federal Unemployment Trust Fund. Therefore, benefits payable under other Federal unemployment benefit and allowance programs are subject to sequestering. These include:

    1. The Redwood Employee Protection Program (REPP);

    2. The Trade Adjustment Assistance Program (TAA);

    3. The Disaster Unemployment Assistance Program (DUA);

    4. The Airline Employee Protection Program (AEPP);

    5. Any future Federal UI or UI-type program, unless specifically exempted by Federal statute.

    Benefits for these programs are paid by State agencies under agreements with the Secretary of Labor which specify the terms and conditions for payment of benefits. Since following sequestration, there is sufficient budget authority remaining to cover payments under REPP, no reduction in payments to claimants will be effected in FY 1986. Also, for FY 1986, DUA will continue to be paid in accordance with Federal regulations as long as obligational authority is available. Should obligational authority run out, DUA payments must stop; States will be advised further if this occurs. In addition, the Department will inform the States of any changes in payments under the above programs which become necessary due to the sequestering of budget resources that finance them.

  11. Effect of P.L. 99-177 on Administrative Financing.  Section 256(b)(3) of P.L. 99-177 states that Federal payments to States for the administration of unemployment compensation programs will be subject to sequestering, including the programs exempt from benefit sequestering under subsection (h)(1). Subsection (h)(1) lists three programs: regular unemployment compensation, loans to States under Title XII of the Social Security Act, and UCFE/UCX benefits. This means that administrative funds associated with these and any other Federal unemployment compensation programs are subject to reduction by a sequester order.

    Under section 256(a)(2) of P.L. 99-177, any administrative funds which are sequestered will be permanently cancelled. However, amounts sequestered in special or trust funds, such as the Unemployment Trust Fund, will remain in the fund and be available for future use "to the extent permitted by law."

    If administrative funds are reduced by sequestering, States have the following options:

    1. Reduce program administration to operate within the reduced administrative budget;

    2. Use monies available from existing special State funds, such as penalty and interest funds. Most States already have special administrative funds, made up usually of interest on delinquent contributions, fines and penalties, to meet special needs. While most State laws allow these funds to be used for administration, some laws limit the amounts that can be spent or restrict the agency's flexibility in using these funds. States may wish to consider legislation which will allow the agency greater flexibility in using these funds for administrative purposes; or

    3. Provide other funds for administration from State general revenues or other State sources. If a State chooses to provide for a special levy to finance the administrative funds reduced by the sequester order, it should contact the Regional Office to ensure that its approach is consistent with Federal law.

  12. Action Required. State agency administrators are requested to provide the above information to appropriate staff.

  13. Inquiries. Please direct inquiries to the appropriate regional staff.

  14. Attachments. P.L. 99-177, and Conference Report No. 99-433.

     

     


     

    1.  In States with statutory provisions under which dependent's allowances are provided, the phrase "weekly basic or augmented benefit amount, whichever is appropriate," should be substituted for the words "weekly benefit amount," and "weekly basic or augmented benefit amounts, whichever are appropriate," for the words "weekly benefit amounts."

    2.  A State may provide for reducing the claimant's weekly benefit amount by less than the percentage of the Federal share reduction.

    3.  The sentence on rounding is provided for those States which have elected to round down EB weekly benefit amounts.

    4.  In State law with no provisions for payment of dependents' allowances, references to such allowances should be omitted.

    5.  If, under the State law, the weekly benefit amounts may fluctuate during the benefit year, the word "average" should be added before the words " weekly benefit amount."

    6.  This paragraph is necessary only in a State law under which regular benefits payable to an individual in his benefit year may exceed 26 times his weekly benefit amount.

    7.  This provision is pertinent only in States in which the State law provides for the payment of wholly State-financed additional, benefits. Such States, under the Federal law, may (but do not have to) provide for the reduction of the total amount of extended benefits payable to an individual by the amount of additional benefits which were paid (or deemed paid) to the individuals in his applicable benefit year before he becomes entitled to extended benefits.

    8.  Include reference to the section of State law under which wholly State-financed additional benefits are payable.

    9.  Include reference to the section of State law under which the reduction in the weekly extended benefit amount is authorized.