FY 2014 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
                                                         September 27, 2013

ADVISORY:        UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 30-13

TO:              STATE WORKFORCE AGENCIES

FROM:            ERIC M. SELEZNOW /s/
                 Acting Assistant Secretary

SUBJECT:         Implementation of Sequestration under the Budget Control Act of 2011 for
                 Mandatory Unemployment Insurance Programs for Fiscal Year 2014

1. Purpose. To provide information to State Workforce Agencies (SWAs) about the potential
   for sequestration in Fiscal Year (FY) 2014 and how the Department of Labor (Department)
   would apply sequestration to mandatory Unemployment Insurance (UI) programs for FY
   2014, so that SWAs can make necessary operational changes.

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. 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;


 RESCISSIONS                                            EXPIRATION DATE
 None                                                   Continuing

   •   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;
   •   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); and
   •   OMB Sequestration Update Report to the President and Congress for Fiscal Year 2014,
       dated August 20, 2013.

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.
   Since no such action occurred, the President (after the ATRA delayed the sequestration
   implementation date) issued a sequestration order on March 1, 2013, which implemented
   sequestration for FY 2013. Because no changes to the requirements of the BBEDCA for FY
   2014 have yet been made, it is prudent to proceed with planning for sequestration in FY
   2014.

    The Administration has presented a comprehensive deficit reduction plan that would
    eliminate sequestration, and hopes that Congress will act on it to avert sequestration for FY
    2014 and beyond. However, unless Congress acts soon, a 7.2 percentage reduction in non-
    exempt mandatory programs will go into effect on October 1, 2013, for FY 2014 (as set out
    in the May 20, 2013, OMB Sequestration Preview Report). The percentage reductions
    applicable to discretionary programs, projects, and activities (PPAs) have not yet been
    determined and would be applied later in FY 2014. If Congress does not void sequestration,
    additional guidance will be issued in early 2014 on the FY 2014 sequestration for
    discretionary PPAs for the UI program.

4. Impact of Sequestration on the Mandatory UI Programs in FY 2014. Below is a list of
   PPAs related to the mandatory UI programs and the applicability of sequestration to each
   PPA. This UIPL does not address the effects of sequestration on discretionary UI programs,
   since if any sequestration of discretionary funds were to take effect, it would not be until later
   in the fiscal year, per the terms of the BCA.

   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);

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       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: 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 mandatory PPAs:

       1) Emergency Unemployment Compensation (EUC) benefits and administrative funding
          and the Federal share of Extended Benefits (EB);
       2) EUC-related Reemployment Services and Reemployment and Eligibility Assessments
          (RES/REAs);
       3) Federal reimbursement of state STC benefit costs authorized in section 2162 of
          Pub. L. 112-96; and
       4) Federal share of benefit costs under state STC agreements authorized in section 2163
          of Pub. L. 112-96.
       5) Trade Adjustment Assistance funds appropriated under the Federal Unemployment
          Benefits and Allowances Account (FUBA)

5. Impact of Sequestration on EUC. The EUC funding for both benefits and administration is
   subject to sequestration reductions of 7.2 percent for FY 2014. The EUC program is
   scheduled to expire December 31, 2013. The Department has determined that the FY 2014
   reductions will be applicable to benefits paid beginning with the week ending October 5,
   2013, and continuing through the week ending December 28, 2013.

   Due to the extraordinary programming challenges states experienced during sequestration
   implementation for FY 2013, and the additional challenges presented by the further changes
   necessary for sequestration implementation for FY 2014, the Department has reached out to
   states with various options that may be used in order to achieve the required FY 2014
   sequestration savings. Letters have been sent to each state approving the implementation
   strategy agreed upon by the Department and the state in advance of further specific guidance
   in this UIPL.

   EUC Administration

   EUC administration is funded quarterly along with above-base workload for regular UI. The
   sequestration reduction of 7.2 percent would be applied to above-base funds provided to the
   states for administration of EUC during the first quarter of FY 2014. The 6.9 percent
   reduction specified in UIPL No. 13-13 would be applied to EUC administrative funding for
   workloads processed through the fourth quarter of FY 2013. In addition, states were
   provided the opportunity to request supplemental EUC administrative funding during the
   fourth quarter of FY 2013 to implement the required sequestration to EUC benefits in FY
   2014 in UIPL No. 27-13.



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Calculation of EUC Benefit Reduction

The EUC benefit reduction would be 7.2 percent for the first quarter of FY 2014. The
Department conferred with states to determine the best way to achieve the required savings
given the complexities and challenges of making the required changes to their systems on a
state-by-state basis and, as noted above, confirmed the agreed-upon strategies in letters to the
states.

EUC Option

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

Notifications to EUC Recipients

States must notify affected EUC claimants of the potential FY 2014 EUC payment
reductions as outlined in the letters they received regarding agreed upon strategies.

Where necessary, 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. States should refer to the option letter they received for sample language
related to the implementation option they will be using.

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

In the event that the state must recalculate 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 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, maximum benefit amount (MBA), or remaining
entitlement was correctly calculated. Individuals may also appeal, and the appellate authority
may rule on, any overpayment determination(s) that result from these benefit reductions.




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   EUC RES/REAs

   For each RES/REA completed, or substantially completed, during weeks beginning
   September 29, 2013, and through weeks ending December 28, 2013, the $85 per RES/REA
   provided to fund these activities would be reduced by 7.2 percent. States withdrawing funds
   from the Payment Management System for RES/REA activities accomplished during that
   time period may only withdraw $78.88 for each completed or substantially completed
   RES/REAs.

   EUC Overpayments Due to Sequestration

   Some EUC overpayments may result from 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 SWA may need to notify
   the appropriate agency or entity.

6. Impact of Sequestration on EB. The applicable percentage reduction to the Federal share
   of EB benefit costs is 7.2 percent for weeks of unemployment ending on or after October 5,
   2013, and ending with weeks of unemployment ending on September 27, 2014. Absent
   sequestration, the Federal share of EB is 100 percent for weeks of unemployment beginning
   before December 31, 2013. After December 31, 2013, the Federal share of EB returns to 50
   percent for weeks of unemployment for the remainder of FY 2014. 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 7.2 percent reduction.

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

   Under the Federal-State 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), Federal-State 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

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          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.”

   State law must 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 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.

7. Reporting Weekly UCFE Claims in STC Programs. States use the Employment and
   Training Administration (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, SWAs may approve Federal agencies’ STC/Workshare plans in 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 report,
   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, information on the


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   ETA 538 report 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 Approval No. 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 being reported.

8. Impact of Sequestration on TAA. 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 Assistance (RTAA) benefits under the TAA program
   would not be reduced for purposes of sequestration for FY 2014. The Department would
   apply the full 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.

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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