FY 2017 sequestration for 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
                                                       January 19, 2017


ADVISORY:       UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 9-17

TO:            STATE WORKFORCE AGENCIES

FROM:          PORTIA WU /s/
               Assistant Secretary

SUBJECT:       Implementation of Sequestration under the Budget Control Act of 2011 for
               Mandatory Unemployment Insurance Programs for Fiscal Year 2017


1. Purpose. To provide information to State Workforce Agencies (SWAs) about the
   application of sequestration in Fiscal Year (FY) 2017, how the Department of Labor
   (Department) will apply sequestration to mandatory Unemployment Insurance (UI) programs
   and on delayed benefit payments from prior fiscal years, and the resulting administrative
   costs.

2. 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);
    Consolidated Appropriations Act, 2012 (Pub. L. 112-74);
    Continuing Appropriations Resolution, 2013 (Pub. L. 112-175);
    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;


RESCISSIONS                                           EXPIRATION DATE
None                                                  Continuing

      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;
      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;
      Office of Management and Budget (OMB) Sequestration Preview Report to the President
       and Congress for Fiscal Year 2014 and OMB Report to the Congress on the Joint
       Committee Reductions for Fiscal Year 2014 (April 10, 2013) (Corrected Version—May
       20, 2013);
      OMB Sequestration Update Report to the President and Congress for Fiscal Year 2014,
       dated August 20, 2013;
      OMB Report to the Congress on the Joint Committee Reductions for Fiscal Year 2015,
       dated March 10, 2014;
      OMB Report to the Congress on the Joint Committee Reductions for Fiscal Year 2016,
       dated February 2, 2015; and
      OMB Report to the Congress on the Joint Committee Reductions for Fiscal Year 2017,
       dated February 9, 2016.

3. Background. The BCA amended the 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 9, 2016, OMB Report to
   the Congress on the Joint Committee Reductions for Fiscal Year 2017, a 6.9 percent
   reduction in non-exempt mandatory programs went into effect on October 1, 2016, for FY
   2017. There are no sequestration reductions applicable to discretionary programs, projects,
   and activities (PPAs) for FY 2017.

4. Impact of Sequestration in FY 2017 on Benefit Payments Delayed from Prior Fiscal
   Years and Resulting Administrative Costs. Payments in FY 2017 of benefits and
   associated administrative costs regarding the programs listed below in this section that are


   delayed from prior fiscal years, for example because of appeals, are subject to the 6.9 percent
   FY 2017 sequestration reduction. This is because FY 2017 funds, rather than FY 2016 funds,
   have been apportioned for these purposes. The programs to which this applies are:

       1) Emergency Unemployment Compensation (EUC) benefits and administrative
          funding; and
       2) The Federal share of Extended Benefits (EB).

5. Impact of Sequestration on the Mandatory UI Programs in FY 2017. 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 mandatory PPAs:

       1) The Federal share of Extended Benefits (EB); and
       2) Trade Adjustment Assistance funds appropriated under the Federal Unemployment
          Benefits and Allowances Account (FUBA).

6. Impact of Sequestration on EB. The applicable percentage reduction to the Federal share
   of EB benefit costs is 6.9 percent starting with weeks of unemployment ending on
   October 8, 2016, and ending with weeks of unemployment ending on September 30, 2017.
   Unless a state were to amend its law to reduce EB benefits, as explained below, reduction in
   Federal sharing 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 6.9 percent
   reduction.

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

   Under the Federal-State 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), Federal-State
   EUCA.) However, 2 U.S.C. 906(i)(2) (BBEDCA section 256(h)(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 these EB reductions must provide notice to
     claimants and an opportunity to appeal the calculation of the amounts, but they may not
     appeal the reduction itself since it is set by Federal law.

    7. Impact of Sequestration on EUC. EUC funding for both benefits and administration is
    subject to a sequestration reduction of 6.9 percent in FY 2017. Although any residual EUC
    benefit payments made in FY 2017 would relate to benefit weeks that occurred in prior fiscal
    years, the FY 2017 sequestration reduction of 6.9 percent should be applied to any EUC
    benefit payments made in FY 2017.

     EUC administration is funded quarterly in combination with above-base workload for regular
     UI. The sequestration reduction of 6.9 percent will be applied to above-base funds provided
     to the state for the administration of EUC. Although the EUC program expired on
     January 1, 2014, the Department will continue to provide administrative funds to cover
     residual EUC administrative workloads.

    8. Impact of Sequestration on TAA. The applicable percentage of reduction to Trade
    Adjustment Assistance is 6.9 percent in FY 2017. 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.

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

10. Inquiries. Questions should be directed to the appropriate Regional Office.