Fiscal 2019 sequestration of mandatory UI programs

CLASSIFICATION
   EMPLOYMENT AND TRAINING ADMINISTRATION                  UI
               ADVISORY SYSTEM                             CORRESPONDENCE SYMBOL
          U.S. DEPARTMENT OF LABOR                         OUI/DFAS
             Washington, D.C. 20210                        DATE
                                                           December 12, 2018

ADVISORY:        UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 01-19

TO:              STATE WORKFORCE AGENCIES

FROM:            MOLLY E. CONWAY /s/
                 Acting Assistant Secretary

SUBJECT:         Implementation of Sequestration under the Budget Control Act of 2011 for
                 Mandatory Unemployment Insurance Programs for Fiscal Year 2019

1. Purpose. To provide sequestration rules for Fiscal Year (FY) 2019 to State Workforce
   Agencies (SWAs) that apply to mandatory Unemployment Insurance (UI) programs and
   information on how the U.S. Department of Labor (Department) will apply those rules.
   These rules include the application of sequestration on delayed benefit payments for prior
   FYs and the resulting administrative costs.

2. Action Requested. State Administrators are to provide this guidance to appropriate staff.

3. Summary and Background. The Budget Control Act of 2011 (BCA) amended the
   Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA) to require
   reductions in budgetary authority, known as sequestration, beginning on January 2, 2013,
   unless Congress passed, and the President signed, a bill that reduced the deficit by at least
   $1.2 trillion over 10 years. As required by the sequestration order and set out in the February
   12, 2018, Office of Management and Budget (OMB) Report to Congress on the Joint
   Committee Reductions for FY 2019, a 6.2 percent reduction in non-exempt mandatory
   programs became effective on October 1, 2018, for FY 2019. For any active impacted
   Extended Benefits (EB) or Emergency Unemployment Compensation (EUC) claims
   (explained further below) to which the 6.2 percent sequestration was not applied for weeks of
   unemployment during FY 2019, an adjustment to future payments must be made.

   If the FY 2018 sequestration of 6.6 percent was applied to weeks of unemployment during
   FY 2019, claimants must be reimbursed the difference. If no sequestration percentage was
   applied to such weeks, the adjustment must be applied to future payments in the current
   benefit period, so that the total amount of benefits paid equals the amount that would have
   been paid if the 6.2 percent sequestration had been applied since the beginning of FY 2019.
   For any benefit payments made to claimants who are no longer claiming or if remaining
   entitlement is insufficient to recoup the 6.2 percent sequestration amount, or any portion of
   that sequestration amount, an overpayment for the amount must be established.

 RESCISSIONS                                              EXPIRATION DATE
 None                                                     Continuing

4. Impact of Sequestration in FY 2019 on Benefit Payments Delayed from Prior Fiscal
   Years and Resulting Administrative Costs. Programs listed in this section that issue
   benefits in FY 2019 for prior periods are subject to the 6.2 percent FY sequestration
   reduction. The reduction applies to the payments issued and the associated administrative
   costs. This is because FY 2019 funds, rather than prior year funds, have been apportioned for
   these purposes.

       1)     EUC benefits and administration; and
       2)     The Federal share of EB benefits.

   Treatment of administrative funds for EUC is discussed below.

   Impact of Sequestration on the Mandatory UI Programs in FY 2019. Below is a list of
   programs, projects, and activities (PPAs) related to the mandatory UI programs and the
   applicability of sequestration to each PPA.

   The following PPAs are exempted from sequestration:

       1) Unemployment compensation paid by a state from its account in the Unemployment
          Trust Fund;
       2) Title XII, Social Security Act (SSA), advances to states; and
       3) Unemployment Compensation for Federal Employees (UCFE) and Unemployment
          Compensation for Ex-Servicemembers (UCX).

   Note: The Federal Emergency Management Agency advises that there is no impact on
   Disaster Unemployment Assistance (DUA) administrative funding or benefits.

   Sequestration applies to the following PPAs:

       1) The Federal share of EB benefits;
       2) Trade Adjustment Assistance (TAA) funds appropriated under the Federal
          Unemployment Benefits and Allowances Account (FUBA); and
       3) EUC benefits and administrative costs.

   Impact of Sequestration on EB. The applicable percentage reduction to the Federal share
   of EB benefit costs is 6.2 percent starting with weeks of unemployment ending on October 6,
   2018, and ending with weeks of unemployment ending on October 5, 2019. Unless a state
   amends its law to reduce EB benefits, as explained below, a reduction in the Federal share of
   EB due to sequestration means the state becomes responsible for paying the remaining EB
   share from its own funds, i.e., the amount represented by the 6.2 percent reduction.

   Authority for States to Reduce EB Weekly Benefit Amounts due to Sequestration

   Under the Federal-State Extended Unemployment Compensation Act (EUCA), the EB
   weekly benefit amount (WBA) is “the amount of regular compensation (including

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dependents’ allowances) under the State law payable to such individual for such week for
total unemployment.” (Section 202(b)(2), Federal-State EUCA.) However, 2 U.S.C.
906(i)(2) (BBEDCA Section 256(i)(2)) permits states to reduce EB WBAs if the Federal
share of EB benefit costs is reduced under a sequestration order. That section provides:

   “(A) A State may reduce each weekly benefit payment made under the Federal-State
   Extended Unemployment Compensation Act of 1970 for any week of unemployment
   occurring during any period with respect to which payments are reduced under an order
   issued under section 904 of this title by a percentage not to exceed the percentage by
   which the Federal payment to the State under section 204 of such Act is to be reduced for
   such week as a result of such order.

   (B) A reduction by a State in accordance with subparagraph (A) shall not be considered as
   a failure to fulfill the requirements of section 3304(a)(11) of Title 26.”

As a condition of reducing EB WBAs, state law must authorize the reduction in EB WBAs as
specified in the BBEDCA. Note that actual reductions in Federal spending could not be
achieved if WBAs are reduced without also reducing individuals’ remaining entitlement or
maximum benefit amount (MBA) for EB. For this reason, state law must also provide for
reductions in EB remaining entitlement and MBA if it provides for reducing EB WBAs.

Any state amending its law to provide for EB reductions due to sequestration must provide
notice to claimants and an opportunity to appeal the calculation of the amounts. The notice
should also inform claimants that appeal of the sequestration reduction itself will not succeed
as sequestration is mandated by Federal law.

Impact of Sequestration on EUC. EUC funding for both benefits and administration is
subject to a sequestration reduction of 6.2 percent in FY 2019. Although any residual EUC
benefit payments made in FY 2019 would relate to benefit weeks that occurred in prior fiscal
years, the FY 2019 sequestration reduction of 6.2 percent will be applied to any EUC benefit
payments made in FY 2019. This is because FY 2019 funds, rather than prior year funds,
will be apportioned for these purposes.

EUC administration is funded quarterly in combination with above-base workload for regular
UI. The sequestration reduction of 6.2 percent will be applied to above-base funds provided
to the state for the administration of EUC for the quarter ending December 31, 2018.
Although the EUC program expired on January 1, 2014, the Department will continue to
provide administrative funds to cover residual EUC administrative workloads.

Impact of Sequestration on TAA. The applicable percentage of reduction to TAA is 6.2
percent in FY 2019. As in previous fiscal years, using the flexibility under BBEDCA, the
Department will apply the full TAA Program sequestration to the funding for Training and
Other Activities, which are the funds available for training, employment and case
management services, out-of-area job search, relocation allowances, and related
administrative expenses. The reductions will not be applied to Trade Readjustment

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   Allowances (TRA), Reemployment Trade Adjustment Assistance (RTAA) benefits, or
   Alternative Trade Adjustment Assistance (ATAA) available under the TAA Program.

5. Inquiries. Please direct inquiries to the appropriate Regional Office.

6. References.

      Federal-State Extended Unemployment Compensation Act of 1970 (Federal-State
       EUCA) (Pub. L. 91-373);
      Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA) (Pub. L. 99-
       177), as amended by the Budget Control Act;
      Budget Control Act of 2011 (BCA) (Pub. L. 112-25);
      Middle Class Tax Relief and Job Creation Act of 2012 (Pub. L. 112-96);
      American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240);
      Unemployment Insurance Program Letter (UIPL) No. 23-08, dated July 7, 2008,
       Supplemental Appropriation Act, 2008, Title IV – Emergency Unemployment
       Compensation;
      UIPL No. 04-10, Change 3, dated July 23, 2010, Emergency Unemployment
       Compensation Program Extension and Modification, Extended Benefits Temporary
       Provisions Extension, and Expiration of Federal Additional Compensation, and Change
       9, dated March 5, 2012, Extension and Modification of Emergency Unemployment
       Compensation, 2008 (EUC08) and Extension of Temporary Extended Benefits (EB)
       Provisions;
      UIPL No. 22-12, dated June 18, 2012, Short-Time Compensation Provisions in the
       Middle Class Tax Relief and Job Creation Act of 2012;
      UIPL No. 13-13, dated March 8, 2013, Implementation of Sequestration under the Budget
       Control Act of 2011 for the Unemployment Insurance Programs for Fiscal Year 2013,
       and Change 1, dated April 9, 2013, Implementation of Sequestration under the Budget
       Control Act of 2011 for the Unemployment Insurance Programs for Fiscal Year 2013 –
       Questions and Answers: Emergency Unemployment Compensation;
      UIPL No. 15-13, dated March 29, 2013, Unemployment Insurance (UI) Supplemental
       Funding Opportunity to Fund Costs Attributable to the Implementation of the
       Sequestration Impacts on the Emergency Unemployment Compensation (EUC) Program;
      UIPL No. 27-13, dated September 9, 2013, Unemployment Insurance (UI) Supplemental
       Funding Opportunity to Fund Costs Attributable to the Implementation of the
       Sequestration Impacts on the Emergency Unemployment Compensation (EUC) Program
       in Fiscal Year (FY) 2014;
      UIPL No. 30-13, dated September 27, 2013, Implementation of Sequestration under the
       Budget Control Act of 2011 for Mandatory Unemployment Insurance Programs for
       Fiscal Year 2014;
      UIPL No. 2-15, dated October 15, 2014, Implementation of Sequestration under the
       Budget Control Act of 2011 for Mandatory Unemployment Insurance Programs for
       Fiscal Year 2015, and Change 1, dated January 22, 2015;

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      UIPL No. 12-16, dated March 29, 2016, Implementation of Sequestration under the
       Budget Control Act of 2011 for Mandatory Unemployment Insurance Programs for
       Fiscal Year 2016;
      UIPL No. 9-17, dated January 19, 2017, Implementation of Sequestration under the
       Budget Control Act of 2011 for Mandatory Unemployment Insurance Programs for
       Fiscal Year 2017;
      UIPL No. 6-18, dated March 30, 2018, Implementation of Sequestration under the Budget
       Control Act of 2011 for Mandatory Unemployment Insurance Programs for Fiscal Year
       2018; and
      Office of Management and Budget (OMB) Report to the Congress on the Joint
       Committee Reductions for Fiscal Year 2019, dated February 12, 2018.

7. Attachment(s). Not Applicable

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