Fiscal year 2023 sequestration for mandatory UI programs

CLASSIFICATION
   EMPLOYMENT AND TRAINING ADMINISTRATION                 Unemployment Insurance
               ADVISORY SYSTEM                            CORRESPONDENCE SYMBOL
          U.S. DEPARTMENT OF LABOR                        OUI/DFAS
             Washington, D.C. 20210                       DATE
                                                         March 22, 2023


ADVISORY:       UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 04-23

TO:              STATE WORKFORCE AGENCIES

FROM:           BRENT PARTON
                Acting Assistant Secretary

SUBJECT:        Implementation of Sequestration under the Budget Control Act of 2011 (BCA)
                for Mandatory Unemployment Insurance Programs for Fiscal Year (FY) 2023


1. Purpose. To advise states of sequestration rules for FY 2023 to ensure State Workforce
   Agencies (SWAs) apply these rules to mandatory Unemployment Insurance (UI) programs.
   These rules include the application of sequestration on delayed benefit payments for prior
   FYs and the resulting administrative costs.

2. Action Requested. The Employment and Training Administration (ETA) advises State
   Administrators to provide this guidance to appropriate staff.

3. Summary and Background.

   a. Summary - As required by the sequestration order and set out in the March 28, 2022,
      Office of Management and Budget (OMB) Report to the Congress on the Balanced
      Budget and Emergency Deficit Control Act (BBEDCA) 251A Sequestration for FY 2023,
      a 5.7 percent reduction in non-exempt mandatory programs are effective as of October 1,
      2022, for FY 2023.

   b. Background - The BCA amended the BBEDCA of 1985 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. Such action did not occur and sequestration rules have been in effect since FY
      2013.

4. Sequestration in FY 2023.

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



   RESCISSIONS                                             EXPIRATION DATE
   None                                                    September 30, 2023

      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;
   3) Unemployment Compensation for Federal Employees (UCFE) and Unemployment
      Compensation for Ex-Servicemembers (UCX);
   4) Benefit expenses attributable to PPAs enacted through Pub. L. 116-136, the
      Coronavirus Aid, Relief, and Economic Security (CARES) Act, as amended (see
      explanation in paragraph b. below).

       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 Extended Benefits (EB);
   2) Trade Adjustment Assistance (TAA) funds appropriated under the Federal
      Unemployment Benefits and Allowances Account (FUBA);
   3) Administrative expenses attributable to PPAs enacted through Pub. L. 116-136, the
      Coronavirus Aid, Relief, and Economic Security (CARES) Act, as amended.

b. Impact of Sequestration on Benefit costs for CARES Act PPAs. As stated above, the
   sequestration order set out in OMB’s Report to Congress requires a 5.7 percent reduction
   to budget authority approved for FY 2023. The PPAs established through enactment of
   the CARES Act, as amended, expired September 6, 2021. Although residual benefit
   payments will continue to be issued to claimants beyond the expiration of these programs,
   the Department, in consultation with OMB, has determined these residual benefit
   payments to be obligations incurred when the week of unemployment was experienced.
   Therefore, residual benefit payments will continue to be charged to the FY 2021 budget
   authority and will not be subject to the 5.7 percent sequestration reduction.

c. Impact of Sequestration on Administrative costs for CARES Act PPAs. The
    administrative expenses to be paid in FY 2023 regarding the temporary unemployment
    compensation programs created in the CARES Act, as amended, are treated differently
    than benefit costs paid in FY 2023. Administrative costs are deemed to be incurred when
    staff process the claims workloads. Accordingly, administrative costs for CARES Act
    programs will require new budget authority for FY 2023 and will be subject to a 5.7
    percent reduction. The National Office will apply the sequestration reduction to amounts
    prior to issuing the administrative funding to state grants.

d. Impact of Sequestration on EB. The permanent 50 percent Federal share of EB benefits
   authorized in the Federal-State Extended Unemployment Compensation Act (EUCA) of
   1970 remains subject to sequestration. The applicable percentage of sequestration
   reduction to the permanent 50 percent Federal share of EB costs for FY 2023 is 5.7
   percent starting with weeks of unemployment ending on October 1, 2022 and ending with



  weeks of unemployment ending on September 30, 2023. Unless a state amends its law to
  reduce EB, as explained below, a reduction in the permanent 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 5.7 percent reduction to the
  permanent 50 percent Federal share provided under EUCA.

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

  Under EUCA, the EB weekly benefit amount (WBA) is “the amount of regular
  compensation (including dependents’ allowances) under the State law payable to such
  individual for such week for total unemployment.” (Section 202(b)(2), EUCA.) However,
  section 256(h)(2) of BBEDCA (2 U.S.C. 906(i)(2)) permits states to reduce EB WBAs if
  the Federal share of EB 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.

  Any states considering a change in state law to reduce the WBA is encouraged to work
  closely with ETA to ensure conformity with federal UC law.

e. Impact of Sequestration on TAA. The applicable percentage of reduction to TAA is 5.7
    percent in FY 2023. 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
       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 ETA 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 of 2011;
   •   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);
   •   Families First Coronavirus Response Act of 2020 (Pub. L. 116-127);
   •   Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 (Pub. L. 116-
       136)
   •   Consolidated Appropriations Act, 2021 (Pub. L. 116-260)
   •   American Rescue Plan Act of 2021 (Pub. L. 117-2)
   •   Unemployment Insurance Program Letter (UIPL) No. 23-08, issued July 7, 2008,
       Supplemental Appropriation Act, 2008, Title IV – Emergency Unemployment
       Compensation, and its changes 1 through 6;
   •   UIPL No. 04-10, Change 3, Emergency Unemployment Compensation Program
       Extension and Modification, Extended Benefits Temporary Provisions Extension, and
       Expiration of Federal Additional Compensation, issued July 23, 2010;
   •   UIPL No. 04-10, Change 9, Extension and Modification of Emergency Unemployment
       Compensation, 2008 (EUC08) and Extension of Temporary Extended Benefits (EB)
       Provisions, issued March 5, 2012;
   •   UIPL No. 22-12, Short-Time Compensation Provisions in the Middle Class Tax Relief
       and Job Creation Act of 2012, issued June 18, 2012;
   •   UIPL No. 12-21, Implementation of Sequestration under the Budget Control Act of 2011
       (BCA) for Mandatory Unemployment Insurance Programs for Fiscal Year (FY) 2021,
       issued January 19, 2021;
   •   UIPL No. 05-22, Implementation of Sequestration under the Budget Control Act of 2011
       (BCA) for Mandatory Unemployment Insurance Programs for Fiscal Year (FY) 2022,
       issued December 20, 2021;
   •   Office of Management and Budget (OMB) Report to the Congress on the BBEDCA
       251A Sequestration for Fiscal Year 2022, dated May 28, 2021; and
   •   Office of Management and Budget (OMB) Report to the Congress on the BBEDCA
       251A Sequestration for Fiscal Year 2023, dated March 28, 2022.

7. Attachments. Not applicable.