Unemployment Insurance & Employment Service Reform A New Balance

Unemployment Insurance & Employment Service Reform The Administration’s New Balance proposal will promote flexibility and strengthen Unemployment Insurance and Employment Services to America’s workers and businesses.

The NEW BALANCE Proposal Builds upon reforms achieved in the Temporary Emergency Unemployment Compensation Act signed by the President on March 9, 2002: –Up to extra weeks of benefits are available to eligible workers –$8B distributed to states to strengthen solvency and give states flexibility to improve benefits and services

Cuts FUTA taxes and simplifies filing Enables states to finance administration from state revenues that partially offset FUTA tax cuts Reforms Extended Benefits Provides additional flexibility to states and maintains a strong federal role The NEW BALANCE Proposal

FUTA Tax Cut Jan '02Jan '03Jan '04Jan '05Jan '06Jan ' FUTA Tax Effective Rate - Taxable Wage Base = $7, year Federal Tax Savings for Employers - $36.5 B - All employers receive a 0.2% FUTA tax cut Jan '08

FUTA Filing Simplified Eliminates unnecessary fields on the IRS Form 940, saving employers time and money. Facilitates the streamlining of FUTA reporting and payment through single-point electronic filing.

Changes to IRS Tax Form 940

Transition to State Administrative Financing Special Reed Act distribution of $3.5 B would occur in both FY 2004 and FY –Minimum of $25 million per state In FY 2005, states would assume partial responsibility for funding UI & ES administration. States have primary responsibility for funding beginning FY Assuming enactment in 2002, states would have two years to enact implementing legislation.

Transition Grants FY 2005: –For UI, federal grants will be 2/3 of FY02 funding adjusted for workload & inflation. –For ES, it will be 2/3 of PY02 funding adjusted by size of civilian labor force & inflation. FY 2006: –1/3 of the FY/PY 02 levels, adjusted as above, will be provided as federal grants.

Hold Harmless Supplemental federal funding provided to states where maintaining the current level of UI & ES services would cost more than the state equivalent of 0.4% FUTA. This “hold harmless” level would be: FY 2007: –For UI, hold harmless to FY04 allocations adjusted by workload & inflation. –For ES, hold harmless to PY04 allocations adjusted by inflation. FY FY 2012: –Adjustments made for UI workloads only.

Impact on Federal Accounts $3.5 B transition dist. $8.0 B distributionTrust Fund Balance after Reed Act Special Distributions Statutory ceilings ( March 2002) $ Billions Beginning of Fiscal Year '02'03'04'05'06'07'08'09'10'11'

Extended Benefits (EB) Reform Lower trigger –EB trigger reduced from 5% to 4% insured unemployment –EB available faster in recessions –More unemployed workers get up to 13 weeks of extra benefits –More responsive economic stabilization Repeals Special Federal Rules –States use existing state eligibility requirements –Easier & less costly state administration

Additional State Flexibility Provisions Gaining access to National Directory of New Hires for quick detection of fraudulent claims. Permitting states to cover banking costs by maintaining compensating balances. Enabling states to follow their own requirements for Reed Act Appropriations. Gaining access to National Directory of New Hires for quick detection of fraudulent claims. Permitting states to cover banking costs by maintaining compensating balances. Enabling states to follow their own requirements for Reed Act Appropriations.

Clarifying that UI claimants need not provide proof of citizenship in person. Permitting states to use proceeds from sale of federal equity in real property for program purposes. Clarifying that UI claimants need not provide proof of citizenship in person. Permitting states to use proceeds from sale of federal equity in real property for program purposes. Additional State Flexibility Provisions

Continuing Federal Role Monitoring performance Funding for federal activities– e.g., –Alien Labor Certification –Tax Credit Administration –Federal Unemployment Claims

Continuing Federal Role Maintaining federal laws –Social Security Act –Federal Unemployment Tax Act (FUTA) –Wagner-Peyser Act –IRS collects FUTA tax with streamlined filing

Continuing Federal Role Ensuring conformity/compliance with federal laws –Retained for UI & extended to include ES. –Employers’ tax credit depends on state law and performance meeting federal requirements. –Starting in 2007, loss of credit would result in tax increase from 0.2% to 5.6%.

Brief likely sponsors/cosponsors in Congress Brief state partners and stakeholder groups Bill introduced UI/ES Reform Next Steps