Unemployment Insurance & Employment Service Reform

1. Unemployment Insurance & Employment Service Reform A New Balance

2. 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.

3. The NEW BALANCE Proposal • Builds upon reforms achieved in the Temporary Emergency Unemployment Compensation Act signed by the President on March 9, 2002. • Extra weeks of benefits • $8 B Reed Act distribution

4. The NEW BALANCE Proposal • Cuts FUTA taxes and simplifies filing • Enables states to finance administration from state revenues • Reforms Extended Benefits • Provides additional flexibility to states and maintains a strong federal role

5. FUTA Tax Cut FUTATax EffectiveRate 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 Jan '02 Jan '03 Jan '04 Jan '05 Jan '06 Jan '07 Jan '08 • Taxable Wage Base = $7,000 • Shifts Administrative Taxes to States • All employers receive a 0.2% FUTA tax cut

6. Transition to State Administrative Financing • Special Reed Act distributions • Federal and state government share funding. • States have primary responsibility for funding beginning FY 2007.

7. Federal Funding • FYs 2003 and 2004 • Funds UI/ES administrative costs for all states • FYs 2004 and 2005 • Transfers $3.5 billion to states’ accounts in each year (Reed Act distributions); $25 million minimum per year for each state.

8. Federal Funding • FYs 2005 and 2006 • Shares costs, providing 2/3 of funding in FY 2005 and 1/3 of funding in FY2006. • FYs 2007 through 2012 • Provides “hold-harmless” funding to any state where 0.4% would be insufficient to maintain its approximate current level of UI/ES services.

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10. Trust Fund Balance after Reed Act $3.5 B transition dist. Statutory ceilings Impact on Federal Accounts Special Distributions $ Billions 70 60 50 40 30 20 10 0 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Beginning of Fiscal Year $8.0 B distribution ( March 2002)

11. Worker Benefits Reform • Lowers trigger from 5.0% to 4.0% IUR for Extended Benefits. • Repeals special federal rules for Extended Benefits.

12. 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.

13. Additional State Flexibility Provisions • 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.

14. Continuing Federal Role • Monitoring performance • Funding for federal activities • Maintaining federal laws • Ensuring conformity/compliance with federal laws.

15. UI/ES Reform Next Steps • Legislative proposal transmitted to Congress on 9/17/02. • Unprecedented, major step for Administration to propose to reform UI & ES • Congressman McCrery (R-LA) introduced the bill on 9/19/02 (HR 5418). • Congressional calendar and priorities will not likely accommodate enactment this year.