Can the DC Mayor agree to pay interest on emergency unemployment-trust-fund loans from the federal government, and where does the interest money come from?
Plain-English summary
Every state, including the District of Columbia, runs an unemployment compensation system that pays benefits out of a state-level account inside the federal Unemployment Trust Fund. Most of the time, payroll taxes paid by employers cover benefits. But during recessions, claims spike and a state's account can run dry. When that happens, federal law lets the state borrow from a separate federal unemployment account inside the same Trust Fund and pay benefits with the borrowed money.
Until 1981, those advances were interest-free. The Omnibus Budget Reconciliation Act of 1981 changed that: starting April 1, 1982, states had to pay interest on Title XII advances. Congress also said something important about where the interest could come from. It said the interest "shall not be paid (directly or indirectly) by a State from amounts in its unemployment fund." That meant a state could not pay the interest with the same payroll-tax money that funded benefits.
DC's Department of Employment Services asked Corporation Counsel Judith Rogers in 1982 whether the Mayor could legally agree to pay this interest. The answer was yes. Borrowing from the federal account was already contemplated under the DC Unemployment Compensation Act, the Self-Government Act allows the District to enter contracts of indebtedness with the United States, and Congress had specifically authorized the Mayor to requisition advances from the Treasury. The only constraint was the federal "no payment from the unemployment fund" rule, which DC had to honor by paying interest from general District revenues instead of from the Unemployment Fund.
What this means for you
If you are a DC fiscal officer or a municipal finance professional
This opinion sets the framework that still governs DC borrowing from the federal unemployment account during high-unemployment periods. Three things to remember:
- The Mayor's ordinary authority under the DC Unemployment Compensation Act and the Self-Government Act is broad enough to enter into the indebtedness, even though the bond-issuance limits in D.C. Code §§ 47-321 to 47-334 might suggest otherwise. The borrowing is treated as a contract for indebtedness, not a bond issuance.
- Interest must be paid from a non-Unemployment Fund source. Practically that means general District revenues. If your accounting system commingles, you need to budget the interest line as a general fund expense.
- Section 1202(b) of the Social Security Act sets the interest rate (the higher of the rate on Title XII advances at the start of the fiscal year or 10%, with various adjustments) and the date interest is due. Build those federal mechanics into your repayment plan.
If you are a DC employer
You pay state unemployment insurance taxes that go into the District Unemployment Fund. This opinion protects you in one respect: when DC borrows during a recession and has to pay interest, that interest cannot come out of the fund your taxes built. It has to come from general District revenues. So an interest charge on a federal loan does not, by itself, trigger a higher state UI tax rate against you.
That said, the federal "FUTA credit reduction" mechanism is a separate issue. If DC carries an outstanding federal loan past two consecutive January 1 dates, employers can lose part of the federal unemployment tax (FUTA) credit, which raises their effective FUTA rate. This opinion does not address that. Watch for federal Department of Labor announcements during prolonged DC borrowing periods.
If you are a journalist or researcher covering DC's budget during a recession
Two practical signals to watch for. First, the DC budget will need a line item for interest on Title XII advances, drawn from general District funds, not from the Unemployment Fund. Second, federal records (now published by the Department of Labor) show outstanding state Title XII balances and accrued interest. The DC Mayor's authority to enter into the borrowing does not require additional Council action, since it was contemplated by D.C. Code § 46-107.
If you are a state unemployment administrator outside DC
The legal analysis is portable. The 1981 OBRA's prohibition on paying Title XII interest from the state unemployment fund applies to all states. Different states resolve the funding source differently (general funds, special unemployment-fund-administration accounts, or special state taxes), but the federal floor is the same.
Common questions
Q: What is a Title XII advance?
A: It is a loan from the federal unemployment account, under Title XII of the Social Security Act (42 U.S.C. §§ 1321-1322), made to a state's unemployment account inside the Unemployment Trust Fund when the state account runs short and needs cash to pay benefits. The federal government does not gift the money. It is a loan, repaid with interest from the state's general funds.
Q: Why can't DC pay the interest from its Unemployment Fund?
A: Because Congress, in the 1981 Budget Reconciliation Act, said so. Section 2407(b)(5) of OBRA 1981 added language to 42 U.S.C. § 1322 saying interest "shall not be paid (directly or indirectly) by a State from amounts in its unemployment fund." Congress wanted to keep payroll taxes available for benefits, not loan-servicing.
Q: Does the Mayor need Council approval to borrow?
A: Not for borrowing under D.C. Code § 46-107 itself. The Council already enacted the Unemployment Compensation Act, which contemplates federal advances. The bond-issuance limits in §§ 47-321 to 47-334 don't apply because Title XII advances are contracts for indebtedness with the United States, not bond issuances.
Q: Is this still the law?
A: Yes. The Title XII framework and OBRA 1981's interest provisions remain in force. DC has used Title XII advances during recent recessions and continues to pay interest from general District funds when borrowing occurs.
Q: How is the interest rate set?
A: Under 42 U.S.C. § 1322(b), based on the rate of return earned by state accounts in the Trust Fund, capped at 10%. The rate is set at the start of each federal fiscal year for advances outstanding then.
Background and statutory framework
The Unemployment Trust Fund is a single federal trust fund (managed by the Treasury) that holds the unemployment-insurance reserves of all 50 states, plus the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Each state has its own account inside the Fund. The state account collects payroll taxes paid by employers and pays out benefits to unemployed workers. There is also a separate federal unemployment account inside the Fund. That account exists to make Title XII advances to states whose accounts run short.
DC participates as a state under D.C. Code §§ 46-101(17) and 46-102. The DC Unemployment Compensation Act (D.C. Code § 46-107(b)(5) and (c)(3)) explicitly contemplates that the District's account will receive federal advances when needed.
Until 1981, Title XII advances were interest-free, under 42 U.S.C. § 1321(a). Congress changed that in the Omnibus Budget Reconciliation Act of 1981 (Pub. L. 97-35), which took effect for advances made after April 1, 1982. Section 2407(b)(5) of OBRA 1981 amended 42 U.S.C. § 1322 to require interest, and to prohibit states from paying that interest from their unemployment funds.
The Corporation Counsel's task in 1982 was to confirm that the Mayor had legal authority to obligate the District to pay this interest. The answer turned on three statutory pillars:
-
The DC Unemployment Compensation Act authorizes the Mayor to manage and control the District Unemployment Fund (D.C. Code §§ 46-102, 46-126), which includes the District account in the federal Unemployment Trust Fund. Since the account can receive federal advances, the Mayor's authority over the Fund includes managing the repayment terms.
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The DC Self-Government Act restricts the Mayor's authority to incur debt mainly through bond and note issuance limits (D.C. Code §§ 47-321 to 47-334), but expressly contemplates the Mayor entering into contracts for indebtedness with the United States outside of bond issuances (D.C. Code § 1-1132).
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D.C. Code § 47-3401 explicitly authorizes the Mayor to requisition advances from the Secretary of the Treasury for general expenses and repay them out of taxes and revenue collected.
Reading those three together, the Corporation Counsel concluded there was no conflict with the Self-Government Act or any other District or federal law preventing the District from paying interest, so long as the interest came from a non-Unemployment-Fund source.
Citations and references
Statutes:
- 42 U.S.C. §§ 1321, 1322 (Social Security Act, Title XII)
- Omnibus Budget Reconciliation Act of 1981, Pub. L. 97-35, 95 Stat. 357, § 2407(b)(5)
- D.C. Code §§ 46-101(17), 46-102, 46-107(b)(5), (c)(3), 46-126
- D.C. Code §§ 47-321 to 47-334 (Self-Government Act bond limits)
- D.C. Code §§ 47-3401, 1-1132
License
This opinion is published by the Office of the Attorney General for the District of Columbia. Per the DC.gov terms of use, content is licensed under Creative Commons Attribution 3.0, which permits commercial use, redistribution, and modification with attribution.
Source
- Original PDF: https://oag.dc.gov/sites/default/files/2018-02/Opinion-July-2014-Unemployment-Fund.pdf
Original opinion text
.
•
~nurrutitrrtt nf tqr mistrirt of O!nlumhiu
OFFICE OF THE CORPORATION COUNSEL
DISTRICT BUILDING
WASHINGTON. D.
C.
20004
IN REPLY REFER TO:
LCD:L&O:'m:ps:pn
(82-530)
August 30, 1982
OPINIOO OF THE
:
Unenploynen~
Fund:
Interest on Advances fran
the Federal Account
•
MEMJRANOOM
TO
Matthew F. Shannon
·· Acting
Director
Department of Emp10yqent Services
Judith W. Rogers
J~
· COrporation
Counsel, D. C.
This is in reply to your request dated June 1, 1982, for an
opinion on whether the Mayor may obligate the District of Columbia to pay
interest on advances to it, made fran the Federal unemp10ynent account in the
Unenp10ynent Trust Fund.
•
Sections 1201 an:] 1202 of the Social Security Act, 42 U.S.C.
sees. 1321 an:] 1322, provide that the Secretat:y of the Treasut:y shall make
such advances fran the Federal unenploynent account to State accounts in the
Unenp10yment Trust Fund as are necessat:y to pay cxxnpensation in Mr1 given
nonth. A State may later repay such advances by requesting that the SecretaJ:y
of the Treasury transfer the apprcpriate anount fran its account in the Fund~
The District of Columbia is authorized to maintain an account in the UnE!!1Ployment Trust Fund as a State. D.C. Code sees. 46-101(17) am 46-102 (1981). 'me
District of Columbia Unenp10yment Compensation Act contemplates that the
Distrl£t account in the Unenp10ynent Trust Fund will receive advances under
Federal law. D.C. Code sec. 46-107(b)(S) and (c)(3).
•
-2Until last year, advances from the Federal account in the
Unemployment Trust Fund were repayable without interest~ 42 U.S.C. sec. l32l(a).
However, the Omnibus Budget Reconciliation Act of 1981, Pub. L. 97-35, 95
Stat. 357, amerrled Section 1202 of the Social Security Act, 42 U.S.C. sec. 1322,
to provide that States must pay the Secretary of the Treasury interest on
any such advance made after April 1, 1982, arrl that such interest "shall not
be paid (directly or irrlirectly) by a State fran arrounts in its unemploynent
furrl." Sec. 2407(b){5).
The District of Columbia Unemployment Compensation Act ~ides
that the Mayor shall manage am control the. District 'Unemployment Furrl, D.C.
Code sees. 46-102 am 46-126, which includes the District account in the
Unenployment Trust Furrl. D.C. Code sec. 46-l07(b) (5). As noted supra, the
District account may include advances made pursuant to Federal law. 'llle law
nOtl requires the payment of interest to the Secretary of the Treasury.
Consistent with his authority with respect to the District Qnemployment
Furrl the Mayor may obligate the District to pay the Secretary of the Treasury
interest on advances made to the District account in the Unemployment Trust
Fum, as required by the Omnibus Budget Reconciliation Act of 1981.
•
The restrictions which the D. C. Self-Government Act places
on the Mayor's authority to contract for irrlebtedness relate chiefly to
the issuance of borrls am notes. See D.C. Code sees. 47-321 to 47-334.
Elsewhere, Congress has sPecifically authorized the: Mayor to requisition
advances from the Secretary of the Treasury to Ireet general expenses of the
District, arrl repay those advances out of taxes arrl reverue collected.
D.C. Code sec. 47-3401. 'llle D.C. Self-Goverrnnent Act itself contemplates
that the Mayor will enter into contracts for indebtedness with the
United States, apart fran the issuance of borrls am notes. See D.C. Code
sec. 1-1132.
Accordingly, it is nr:t opinion that there is no conflict
wi th the Self-Government Act or artj other District or Federal law which
would prevent the District fran paying interest on advances to it, made fran
the Federal unemployment account in the Unemployment Trust Furrl, provided that
such interest is not paid fran arrounts in the District Unemployment ~.
JWR
cc:
•
Gladys Mack
Assistant City Administrator
Office of Budget am Resources
Development
Note: the linked DC AG archive PDF bundles this 1982 opinion with an unrelated 1994 memorandum on Convention Center and sports arena preconstruction costs. That 1994 memorandum is enriched as a separate file at dc/1994-10-28-preconstruction-costs-d-c-convention-center-sports-arena.md. The pages of the source PDF after this point have been omitted to avoid duplicating that opinion here.