February 28, 2018
Funding the State Administration of Unemployment
Compensation (UC) Benefits

Underlying Rationale for Federal
Background: A Joint Federal-State
Funding of UC Administration
Program
This atypical arrangement of state-funded benefits and
The Unemployment Compensation (UC) program is
federally funded administration has its roots within the
constructed as a joint federal-state partnership providing
development of the Social Security program. In its 1935
temporary and partial wage replacement to involuntarily
report, the Committee on Economic Security provided an
unemployed workers. Federal law sets broad guidelines
outline of the UC program. It recommended that federal
regarding UC benefits and financing. State laws establish
grants be provided to the states for the administration of UC
specific requirements, resulting in 53 different UC
benefits. The committee asserted that the federal
programs operating in the states, the District of Columbia,
unemployment tax would be an adequate source of funds
Puerto Rico, and the U.S. Virgin Islands. The U.S.
for federal and state administration and provide a level
Department of Labor (DOL) provides oversight for state
playing field for all states. By structuring the funding for
UC programs. DOL also administers the federal portion of
administration to be paid from FUTA revenue, the federal
the UC system, including grants to the states for UC
government could require proper standards of
administration.
administration at the state level. Indeed, states today must
comply with federal tax laws regarding the administration
For a brief overview of the UC program, see CRS In Focus
of their UC programs or face increased FUTA taxes.
IF10336, The Fundamentals of Unemployment
Compensation. For additional details on UC, see CRS
For a discussion of the interaction of proper state
Report RL33362, Unemployment Insurance: Programs and
administration of the UC program and federal
Benefits.
unemployment tax law, see CRS Report R44527,
Unemployment Compensation: The Fundamentals of the
Dedicated Federal Tax Revenue Finances Federal Unemployment Tax (FUTA).
UC Administration
The UC system is financed through payroll taxes paid by
The full 1935 report from the President’s Committee on
employers. State unemployment taxes (SUTA) may only
Economic Security (CES) can be accessed at
fund UC benefits and the state share of the Extended
https://www.ssa.gov/history/reports/ces5.html. (See the
Benefit (EB) program. Federal unemployment taxes
chapter titled: Unemployment Compensation: Outline of
(FUTA) on employers pay for the administration of the
Federal Act.)
program (as well as other expenditures, including the
federal share of EB and loans to insolvent states).
Annual Appropriations for UC
Administration
The net FUTA tax rate on employers in states with UC
As discussed above, each fiscal year, funds are made
programs that are in compliance with all federal rules is
available through the appropriations process to make
0.6% on the first $7,000 of each worker’s earnings per year.
distributions of FUTA revenue for state UC administration,
(The FUTA tax rate for employers is 6.0% on the first
and for the federal costs of administration. Annual
$7,000 of each worker’s earnings, but a 5.4% credit against
appropriations to DOL for administrative expenses are
the federal FUTA tax is available to employers in states
based upon DOL’s assessment of state budgetary
with complying UC programs, bringing the net FUTA tax
requirements, not the size of FUTA collections. These
down to 0.6%.) DOL projects that $6.3 billion in FUTA
appropriations customarily include a base level of funding
taxes will be collected in FY2018.
as well as an additional contingent appropriation. The
appropriations language customarily provides a baseline
FUTA revenues are deposited into an account, the
estimate of national unemployment, as measured by the
Employment Security Administration Account (ESAA), in
volume of unemployment compensation claims expected to
the federal Unemployment Trust Fund (UTF) and then 20%
be filed per week (the average weekly insured
of the deposits are immediately transferred to the Extended
unemployment [AWIU]). Additionally, the contingent
Unemployment Compensation Account (EUCA), which
funding includes a trigger based upon the average volume
funds the federal share of EB. These funds are made
of weekly UC claims exceeding the AWIU baseline. For
available through the annual federal appropriations process,
example, under the President’s FY2019 budget proposal,
designating ESAA funds to be used by DOL for the costs of
for every 100,000 increase in the total AWIU above the
administering the state UC programs.
2,246,000 baseline, an additional $28.6 million in funding
would be available.
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If the need for contingency funds exceeds the base
The RJM forms and instructions that state agencies use to
appropriation but the national AWUI is less than the
request funds are available at
contingent appropriation threshold, then either Congress
https://workforcesecurity.doleta.gov/rjm/.
must enact a supplemental appropriation or states have to
reduce administrative expenses or provide additional state
State-Level Base and Above-Base Allotments
funding from a different revenue stream or state general
DOL funds grants to states for the administration of their
funds (as SUTA funds may only pay for UC and EB). Once
UC programs. These grants are allocated by DOL at the
the AWUI is above the contingent appropriation threshold,
beginning of the fiscal year and apportioned to the states
DOL notifies the Office of Management and Budget, which
quarterly—as long as the economic situation of the state has
then releases funds from the contingent appropriation.
not dramatically changed. DOL typically withholds a
portion of the total state administrative appropriation to
Table 1 provides information on various annual
have additional funds available for states experiencing
appropriations proposals and enacted funding for UC state
higher workloads. These “above-base” funds are allocated
administration for FY2016-FY2018.
at the state’s request once it has been determined that its
workload has increased. For FY2018 base allotments, see
Table 1. Funding for State Administration of
https://ows.doleta.gov/unemploy/content/futa/
Unemployment Compensation, FY2016-FY2018
fy2018suia.asp.
(in thousands of dollars)
State-Level Supplemental Funds

FY2016
FY2017
FY2018a
If a portion of the above-base funds remains unallocated to
the states, DOL may make supplemental funding available
Request
$2,702,550
$2,592,019
$2,505,775
to states for various uses. In recent years, such
House
$2,745,550
$2,660,019
$2,665,775
supplemental grants from DOL have supported states’
efforts related to UC program integrity and performance
Senate
$2,705,550
$2,697,019
$2,637,600
improvements as well as reemployment assessments.
Enacted
$2,725,550
$2,687,600
n/aa
See, for example, a September 2017, DOL Unemployment
Source: Compiled by CRS from congressional laws, bills, and reports
Insurance Program Letter 22-17, “Unemployment Insurance
and DOL budget justifications.
(UI) Supplemental Funding Opportunity for State Consortia
to Modernize Tax and Benefit Systems,” September 8,
Notes: The House and Senate columns include amounts from the
2017, available at https://oui.doleta.gov/dmstree/uipl/
most recent Chamber or Committee action, as compiled from the
uipl2k17/uipl_2217.pdf.
CRS Appropriations Status Table at http://crs.gov/
AppropriationsStatusTable/Index.
UC Appropriations and Sequestration
The sequester order required by the Budget Control Act of
a. As of publication, FY2018 appropriations for Department of
2011 (BCA; P.L. 112-25) and implemented on March 1,
Labor programs have been temporarily extended through a
2013 (after being delayed by P.L. 112-240), affected some
series of continuing resolutions. For more information, see the
but not all types of UC expenditures. Most UC benefits
CRS Appropriations Status Table for FY2018.
payments are not subject to the sequester reductions. But
Authority for DOL Grants to States for
EBs and most forms of administrative funding are subject
UC Administration
to the sequester reductions.
Federal payments from DOL to the states for the
The FY2018 sequestration order requires a 6.6% reduction
administration of UC are authorized under Title III of the
in all nonexempt nondefense mandatory expenditures, but
Social Security Act (42 U.S.C. §502). The U.S. Labor
no sequestration reductions are applicable to discretionary
Secretary determines the funds that each state receives for
programs, projects, and activities. Thus, FY2018 UC
the program’s administrative costs. These grants to the
administrative grants to the states are not subject to a
states are based on (1) the population of the state; (2) an
reduction.
estimate of the number of persons covered by the state UC
law and the cost of proper and efficient administration of
For additional details on this issue, see the section
such law; and (3) such factors as the U.S. Labor Secretary
“Unemployment Insurance Benefits and the Sequester” in
finds relevant.
CRS Report R44836, Unemployment Insurance: Legislative
How DOL Determines Administrative
Issues in the 115th Congress.
Grants to States
Julie M. Whittaker, Specialist in Income Security
Currently, DOL determines the size of each state’s
administrative grant through the Resource Justification
Katelin P. Isaacs, Specialist in Income Security
Model (RJM). The RJM is designed to reflect the states’
Abigail R. Overbay, Senior Research Librarian
current methods of administering the UC program,
IF10838
including their adoption of new technologies. The RJM
collects data from state cost accounting records and allows
states to justify additional resources above the levels in the
cost accounting data for the budget year.
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Funding the State Administration of Unemployment Compensation (UC) Benefits


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https://crsreports.congress.gov | IF10838 · VERSION 2 · NEW

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