Unemployment Insurance Tax and Administration Reform: A State Choice Approach

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Unemployment Insurance Tax and Administration
ReformA State Choice Approach

• Workforce Innovations
• San Antonio, Texas
• July 19 - 21, 2004

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UI Program

• Is a staple of American social and economic
  policy.
• Has served our country well since the late 1930s
  with its extensive scope and scale.
• Is critical to the economic stability of both
  individuals and the nation.

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UI Program

• UI is also the front door to the Workforce
  Investment System and well-positioned to
  facilitate quick reemployment, thus reducing
  benefit outlays.

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UI Program

• However, in the 21st century, the nature of work
  and the workforce are changing.
• Workers no longer work 30 years for the same
  company. States need more flexibility to operate
  effectively.

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UI Program

• Employers have complained that federal
  unemployment taxes are higher than needed to meet
  federal financial responsibilities.
• States have expressed concern with the level of
  administrative funding they receive.

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UI Program

• For all these reasons, we have been examining,
  for several years, ways to reform the UI program.
• President Bush included reform proposals in his
  budget requests in both FY 2003 and FY 2002.

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UI Reform

• This year, the Administration is not pursuing
  comprehensive UI reform legislation due to the
  financial conditions of many state budgets.
• However, the Administration remains committed to
  UI tax and administrative reform that would
  reduce the federal UI tax and would give states
  primary responsibility for funding the program
  and flexibility in administering the program.

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UI ReformState Choice Discussion Draft

• In looking toward future reforms efforts, DOL has
  developed a State Choice approach to UI Reform
  and is seeking reaction from state partners.
• The approach focuses on
• The way the program is funded
• The level of federal taxation and
• State flexibility in administering the program.

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UI ReformState Choice Whats the Choice?

• States could opt to take primary responsibility
  for funding UI administration and secure a
  substantial FUTA tax cut for their businesses.
• States that do not take that option would
  continue to receive federal grants as they do
  today.

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UI Reform

• Features for States Electing to Opt-In
• Federal funds provided to state governments
  during the gradual transition of funding for UI
  program administration.
• Hold-harmless funds available after transition.
• UI administrative funds may be held in the state
  or in a sub-account in states UTF account.

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UI Reform

• Opt-In Features (continued)
• Federal grants for federal activities continue.
• Eligibility for federal grants supporting federal
  policy priorities continues.

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Hold-Harmless

• Hold-harmless funding federal funds will
  compensate for an Opt-in states UI program
  administration costs exceeding its employers tax
  savings.
• In 3rd year after election, would be difference
  between states most recent full funding level
  (adjusted for inflation and UI workload) and
  estimated revenues from 0.4 FUTA.
• Thereafter, same calculation, except adjustment
  would be for UI workload only.

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UI ReformState Choice How Does It Work?
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UI ReformState Choice Whats the Federal Role?

• Conformity/compliance and performance standards
  continue.
• Federal requirements, e.g., prompt and proper
  payments, fair hearings, coverage of services,
  etc., continue.
• Technical assistance, collection and
  dissemination of program data, and oversight of
  federal programs continue.

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UI ReformState Choice Approach

• The State Choice proposal has not been adopted as
  Administration policy and is presented only to
  initiate discussion and consultation with states.