FY 2013 sequestration of federal UI programs

CLASSIFICATION
   EMPLOYMENT AND TRAINING ADMINISTRATION                 UI/EUC
               ADVISORY SYSTEM                            CORRESPONDENCE SYMBOL
          U.S. DEPARTMENT OF LABOR                        OUI/DFAS
             Washington, D.C. 20210                       DATE
                                                           March 8, 2013

ADVISORY:       UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 13-13

TO:             STATE WORKFORCE AGENCIES

FROM:           JANE OATES /s/
                Assistant Secretary

SUBJECT:        Implementation of Sequestration under the Budget Control Act of 2011 for the
                Unemployment Insurance Programs for Fiscal Year 2013

1. Purpose. To advise State Workforce Agencies (SWAs) of the manner in which the
   Department of Labor (Department) plans to apply sequestration to Unemployment Insurance
   (UI) programs for fiscal year (FY) 2013, so the SWAs can make the necessary operational
   changes.

2. References.
   • Federal-State Extended Unemployment Compensation Act of 1970 (EB) (Pub. L. 91-
      373);
   • Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA) (Pub. L. 99-
      177);
   • 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; and
   • UIPL No. 04-10, Change 3, dated July 23, 2010, and Change 9, dated March 5, 2012.

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 reduces the deficit by at least $1.2 trillion over 10 years. The
   ATRA amended the BBEDCA to delay the sequestration implementation date from
   January 2, 2013, to March 1, 2013. As required by the BBEDCA, the President issued a
   sequestration order on March 1, 2013.

   The BBEDCA, as amended, requires $85 billion be reduced from the FY 2013 budgetary
   resources, split between defense and non-defense portions of the budget. The BBEDCA, as
   amended, exempts some programs, projects, activities (PPAs), and accounts and requires


 RESCISSIONS                                             EXPIRATION DATE
 None                                                    Continuing

   separate percentage reductions to be applied to non-exempt discretionary and mandatory
   PPAs. The percentage reductions applicable to non-defense FY 2013 budgetary resources
   are 5.0 percent for discretionary PPAs and 5.1 percent for mandatory PPAs. Supplementing
   the sequestration order, the Office of Management and Budget (OMB) issued its Report to
   Congress on the sequestration for FY 2013. That OMB report provides calculations of the
   amounts and percentages by which various budgetary resources are required to be reduced,
   and a listing of the reductions required for each non-exempt budget account. (The report can
   be found at:
   http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/fy13ombjcseque
   strationreport.pdf)

   To provide states reasonable time to plan for these budget reductions, the Department will
   apply the reductions to UI programs generally beginning on or after March 31, 2013. The
   Department has also determined that it will not apply the percentage reductions to benefits
   that have already been paid, meaning that no benefits already paid will be recovered to
   satisfy the sequestration reductions.

   Since the sequestration percentage reductions apply to the budgetary resources provided for
   all of FY 2013 (October 1, 2012 through September 30, 2013), the actual reductions required
   to be achieved during the remainder of FY 2013 will require higher percentage reductions to
   the remaining available budgetary resources. In general, the higher percentage reductions to
   be applied were determined by applying the appropriate sequestration percentage to the FY
   2013 budgetary resources and dividing the result by the estimated budgetary resources to be
   expended for the period beginning on March 31, 2013, and ending on September 30, 2013.

4. Impact of Sequestration on the UI Programs.

   Below is a list of PPAs related to the 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;
      3) Unemployment Compensation for Federal Employees (UCFE) and Unemployment
         Compensation for Ex-Service-members (UCX);
      4) Short-Time Compensation (STC) grant funds authorized in Section 2164 of Pub. L.
         112-96; and
      5) Self-Employment Assistance (SEA) grant funds authorized in Section 2182 of Pub. L.
         112-96.

   Note: Although the Trade Adjustment Assistance (TAA) program is not exempt from
   sequestration, the Department has determined that Trade Readjustment Allowances (TRA),
   Alternative Trade Adjustment Assistance (ATAA), and Reemployment Trade Adjustment


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Assistance (RTAA) benefits under the TAA program will not be reduced. The Department
plans to apply the TAA program sequestration to other funds available under the program,
which is not expected to affect the amount of TRA, ATAA, or RTAA benefits that are
payable.

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

Sequestration applies to the following discretionary PPAs:

   1) UI state administrative grants under Title III, Social Security Act;
   2) Administrative funding for UCFE, UCX, and the administrative funding for the
      provision of TRA, ATAA, and RTAA benefits under the TAA program;
   3) Reemployment and Eligibility Assessments (REAs) for regular UI program
      claimants; and
   4) UI National Activities.

Sequestration applies to the following mandatory PPAs:

   1) Emergency Unemployment Compensation (EUC) benefits and administrative funding
      and the Federal share of EB benefits;
   2) EUC-related Reemployment Services and Reemployment and Eligibility Assessments
      (RES/REAs); and
   3) Federal reimbursement of state STC benefit costs authorized in Section 2162 of Pub.
      L. 112-96.

Details for Sequestrable Activities

State UI Administrative Grant Funds

Funding for administration of state UI programs has been provided only through March 27,
2013, when the appropriation under the current continuing resolution (CR) funding the
federal government expires. Assuming that the current CR level will be continued for the
remainder of the fiscal year, the Department anticipates that the reduction can be absorbed by
reducing above base distributions for the final three quarters of FY 2013. (The UI-3 report
for the quarter ending March 31, is due on May 1 so that the reduction will be applied
beginning with the reimbursements for the second quarter of FY 2013.) An additional factor
potentially impacting funding needs is the Average Weekly Insured Unemployment (AWIU)
trigger. If workloads rise above the AWIU trigger and additional funding is made available
in accordance with the appropriation language allowing for $28.6 million per 100,000
increase in the actual AWIU, the $28.6 million factor would be reduced by 5.0 percent.

Administrative funding for UCFE, UCX, and TRA, ATAA, and RTAA benefits is provided
through above base funding and will be subject to the reduction applied to those funds.




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   National Activities

   As with state administrative grants, National Activities has been funded under the CR only
   through March 27, 2013. While the sequester will result in a reduction of amounts available,
   it is anticipated that the reduction can be applied without adversely affecting current mission
   critical operations that support the administration of the UI program such as the information
   technology infrastructure that supports the Benefit Accuracy Measurement (BAM) program
   and UI reporting, the Interstate Connection Network or ICON, and the Information
   Technology Support Center. Should the appropriations for National Activities for the
   remainder of FY 2013 after the expiration of the current CR be reduced, funding for these
   activities will need to be reassessed.

   Short Time Compensation Reimbursement

   As one of the mandatory programs, Federal reimbursement of state STC benefits is subject to
   the 5.1 percent reduction in budgetary resources for FY 2013. Eligible states that have
   signed reimbursement agreements and have already received reimbursements for STC in FY
   2013, will have an adjustment made to amounts reimbursed for the month of April to account
   for a 5.1 percent reduction in prior reimbursements received with respect to the period
   beginning October 1, 2012, through March 31, 2013. Reimbursements for STC benefits paid
   in each of the months of April through September will also be reduced by 5.1 percent.

   For eligible states that sign an agreement during the remainder of FY 2013, the 5.1 percent
   reduction will apply to all reimbursements for STC benefits paid during FY 2013, i.e., for
   lump sum payments representing benefits already paid when a state signs an agreement and
   the monthly reimbursements as they are made. States that sign reimbursement agreements
   after September 30, 2013, will have the 5.1 percent reduction applied to eligible STC benefits
   paid during FY 2013.

   REAs for Regular UI Program Recipients

   Amounts available for distribution to states to conduct REAs for recipients of regular UI
   using the FY 2013 appropriation (which will not be known until enactment of an
   appropriation for the remainder of the fiscal year) will be reduced by 5.0 percent. The FY
   2013 allocation for REAs has not yet been distributed to the states. Therefore, the impact of
   the sequestration reduction will be reflected in the allocation for the entire fiscal year when it
   is distributed. Because of reduced funding for FY 2013, participating states may need to
   reduce the number of REAs conducted or make other adjustments to the program. Additional
   states will not be added to the program. Further guidance will be forthcoming.

5. Impact of Sequestration on EUC. The EUC funding for both benefits and administration
   are subject to sequestration reductions of 5.1 percent for all of FY 2013. The Department has
   determined that the reductions will not be applied to benefit payments already made,
   meaning that no benefits already paid will be recovered to satisfy the sequestration
   reductions. In order to give states time to notify claimants and make the operational changes
   needed to implement the percentage reductions, the Department has determined that the


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sequester will apply prospectively to weeks of unemployment beginning on or after March
31, 2013 (for most states this means the week ending April 6, 2013, will be the first week
that will be impacted; in New York, it will be the week ending April 7, 2013).

EUC Administration

EUC administration is funded quarterly along with above-base workload for regular UI. For
the remainder of the fiscal year, the sequestration reduction will be applied to above-base
funds provided to the states in late May, August, and November. The sequester rate for the
full FY 2013 is 5.1 percent, so achieving the sequester amount will require a higher
percentage reduction in the last three quarters. The Department estimates that rate to be 6.9
percent.

Calculation of EUC Benefit Reduction

Based on a March 31, 2013, implementation date, the EUC benefit reduction will be 10.7
percent. The Department has determined that the best way to implement the reduction is to
reduce each claimant’s entitlement (maximum benefit amount (MBA) for claimants entering
an EUC tier or remaining entitlement for claimants already in an EUC tier) and the weekly
benefit amount (WBA) in each EUC tier for which they are eligible. The sequestration
reduction applies to the actual WBA, MBA, or remaining entitlement—not to the formulas
used to calculate them. For example, states must first determine the actual dollar amount of
the EUC MBA absent sequestration. Then, the state would reduce this amount by the
appropriate percentage to determine the sequestered EUC MBA.

For individuals with remaining entitlement in any EUC tier the week beginning March 31,
2013 (in New York, the week beginning April 1, 2013), their remaining entitlement and
WBA will be reduced by 10.7 percent. For individuals entering any EUC tier the week
beginning March 31, 2013 (in New York, the week beginning April 1, 2013), and for any
week thereafter through September 28, 2013 (September 29, 2013 in New York) the MBA
and WBA will be reduced by 10.7 percent.

If the state’s calculation of the WBA, MBA, or remaining entitlement after applying the
sequestration reduction does not result in a whole dollar amount, the state will round either
up or down to the nearest dollar, in accordance with state UI law.

States should make the adjustments necessary to implement these reductions as soon as
possible. However, recognizing there may be some states that are not able to implement
these reductions on March 31, 2013, the applicable percentage reduction will increase the
longer it takes for implementation to begin. The percentage reductions below illustrate the
potential impacts of delaying implementation.




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      1ST APPLICABLE WEEK OF UNEMPLOYMENT                              PERCENTAGE CUT

      April 28 – May 4, (April 29 – May 5 in NY)                       12.8%
      June 2 – June 8, (June 3 – June 9 in NY)                         16.8%
      June 30 – July 6, (July 1 – July 7 in NY)                        22.2%

      States unable to implement the reductions on this timeline must contact their Regional Office
      for a determination of the necessary percentage reduction to apply to EUC benefits for the
      remaining weeks of unemployment in the fiscal year.

      Realizing the difficulty some States may face in implementing weekly percentage reductions
      in a timely manner, the Department will work with States to consider other options that
      balance the statutory requirement to ensure that savings are realized by September 30 with
      the goal of maintaining a safety net for unemployed workers and their families.

      EUC Option

      If an EUC claimant has new entitlement to regular compensation in a subsequent benefit
      year, s/he will continue to be eligible for EUC instead of regular compensation provided s/he
      meets all four criteria outlined in section 4 of UIPL No. 04-10 Change 3 on the “EUC
      Option.” The determination required by section 4 of that UIPL will be made based on the
      EUC WBA determined before the sequestration reduction is applied to the WBA and the
      entitlement. However, the individual would be eligible for the EUC sequestration-reduced
      WBA.

      Notifications to EUC Recipients

      States must immediately begin notifying individual EUC claimants of the EUC payment
      reductions. States may start by notifying all individuals with active EUC claims. However,
      when individuals with remaining entitlement reopen their EUC claims, the state must notify
      them as well.

      Such notification may be done through the mail, internet, interactive voice response system,
      or other means currently used by the state to notify or provide claimants with information.
      See sample language below.

                 Sample Notice to EUC Claimants

                 The Budget Control Act of 2011 (Public Law 112-25) requires across-the-board
                 budget reductions to many federal programs, including the Emergency
                 Unemployment Compensation (EUC) program. These reductions are generally
                 known as “sequestration.” This means that payments of EUC for weeks that begin
                 on or after March 31, 2013, must be reduced by 10.7percent for each week of
                 unemployment through September 2013 1.

1
    This sentence must be modified if the state delays implementation of the sequester reduction.

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          You will be sent a revised EUC monetary determination providing you with the
          new remaining entitlement and new weekly benefit amount for your EUC claim
          that began on [XXX]. You will be notified if there are subsequent changes
          affecting your EUC entitlement.

We also strongly encourage states to post information about sequestration of EUC benefits
on state Web sites and in their American Job Centers, and to use social media to relay the
information.

Once the state recalculates the EUC monetary entitlement under the sequestration reduction,
a new monetary determination must be provided to each EUC claimant as soon as possible.

Appeals of EUC Monetary Determinations under the Sequestration

While a claimant may appeal the state’s new monetary determination(s), the monetary
reduction itself as required by sequestration is not an issue on which a state’s UI appellate
authority has any discretion since it is set by Federal law. The appellate authority may,
however, determine whether the new WBA, MBA, or remaining entitlement was correctly
calculated. Individuals may also appeal, and the appellate authority rule on, any
overpayment determination(s) that result from these benefit reductions.

EUC RES/REAs

For each RES/REA completed, or substantially completed, during weeks beginning March
31, 2013, and through weeks ending September 28, 2013, the $85 provided to fund these
activities will be reduced by 10.1 percent. States withdrawing funds from the Payment
Management System for RES/REA activities accomplished during that time period should
only withdraw $76.42 for each completed or substantially completed RES/REAs.

EUC Overpayments Due to Sequestration

Some EUC overpayments may result due to implementation of sequestration reductions.
States must make necessary adjustments to correct any payment errors due to the
sequestration in accordance with their redetermination authority and/or establish and recover
overpayments when detected in accordance with section 6 of Attachment A to UIPL No. 23-
08 and UIPL No. 04-10, Change 9.

Deductions from EUC WBAs

States must first apply the sequestration reduction to determine an individual’s new EUC
WBA before making any deductions for taxes, child support obligations, earnings,
overpayment recoveries, or anything else permitted under state law. If the reduced WBA
results in different amounts being deducted for certain obligations because sufficient funds
are no longer available to continue to deduct the prior amounts, the state workforce agency
may need to notify the appropriate agency or entity.



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6. Impact of Sequestration on EB. The applicable percentage reduction to the Federal share
   of EB benefit costs is the same as is applicable to EUC benefits, (i.e., the Federal share is
   reduced by 10.7 percent for weeks of unemployment beginning on or after March 31, 2013,
   and ending with weeks of unemployment ending on September 28, 2013). Absent
   sequestration, the Federal share of EB is currently 100 percent. 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 10.7 percent reduction.

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

   Under the Federal-State Extended Unemployment Compensation Act of 1970 (EUCA), the
   EB 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(i)(2) of BBEDCA (2 U.S.C. 906(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 254 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 the Internal
          Revenue Code of 1954(2 U.S.C. 906(i)(2)).

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

   Any state amending its law to provide for these EB reductions must follow the EUC
   procedures described above, including providing notice to claimants and an opportunity to
   appeal.

7. Reporting Weekly UCFE Claims in STC Programs.

   States use the ETA 539 report to provide totals for initial and continuing claims by program
   type: state regular, UCFE, UCX and STC/Workshare. States are currently directed to report
   UCFE and UCX activity in the cells provided for those programs, and to report
   STC/Workshare activity in the cells provided for that program. As a result of sequestration,
   State Workforce Agencies (SWAs) may approve Federal agencies’ STC/Workshare plans in


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   states that operate STC programs. Should this occur, any resulting STC activity resulting
   from furloughed Federal employees will be reported as STC activity on the ETA 539,
   consistent with the way such reporting is performed now. States will provide a break-out in
   the comments of the ETA 539 report detailing the program from which the various STC
   initial and continuing claims are reported as follows:

       Regular STC initial claims:
       Regular STC initial claim equivalents:
       Regular STC continuing claims:
       Regular STC continuing claim equivalents:
       UCFE STC initial claims:
       UCFE STC initial claim equivalents:
       UCFE STC continuing claims:
       UCFE STC continuing claim equivalents:
       UCX STC initial claims:
       UCX STC initial claim equivalents:
       UCX STC continuing claims:
       UCX STC continuing claim equivalents:

   States do not need to make changes to their methods for preparing the ETA 538 report. Any
   activity that comes about as a result of Federal agencies adopting STC/Workshare
   agreements should be reported as STC/Workshare activity. In addition, reporting on the
   ETA 538 should continue to include STC/Workshare initial claim equivalents and
   STC/Workshare continuing claim equivalents.

   The ETA 538 and ETA 539 are approved information collections (OMB# 1205-0028) and
   the comment field in that report has been, and continues to be, used by states to provide
   context and detail that are necessary to properly understand the data that are being reported.

8. Implementation Costs. Each state will receive $40,000 from funds available for EUC
   administration to support activities necessary for sequestration implementation. Funds will
   be made available in the Payment Management System by March 29, 2013.

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.




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