Updated June 10, 2019
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 President’s Committee on Economic Security
unemployed workers. Federal law sets broad guidelines
(CES) provided an outline of the UC program. It
regarding UC benefits and financing. State laws establish
recommended that federal grants be provided to the states
specific requirements, resulting in 53 different UC
for the administration of UC benefits. The committee
programs operating in the states, the District of Columbia,
asserted that the federal unemployment tax would be an
Puerto Rico, and the U.S. Virgin Islands. The U.S.
adequate source of funds for federal and state
Department of Labor (DOL) provides oversight for state
administration and provide a level playing field for all
UC programs. DOL also administers the federal portion of
states. By structuring the funding for administration to be
the UC system, including grants to the states for UC
paid from FUTA revenue, the federal government could
administration.
require proper standards of administration at the state level.
States today must comply with federal tax laws regarding
For a brief overview of the UC program, see CRS In Focus
the administration of their UC programs or face increased
IF10336, The Fundamentals of Unemployment
FUTA taxes.
Compensation. For additional details on UC, see CRS
Report RL33362, Unemployment Insurance: Programs and
For a discussion of the interaction of proper state
Benefits.
administration of the UC program and federal
unemployment tax law, see CRS Report R44527,
Dedicated Federal Tax Revenue Finances Unemployment Compensation: The Fundamentals of the
UC Administration
Federal Unemployment Tax (FUTA).
The UC system is financed through payroll taxes paid by
employers. State unemployment taxes (SUTA) may only
The full 1935 report from the 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 $6.4 billion in FUTA
appropriations customarily include a base level of funding
taxes will be collected in FY2019.
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 FY2020 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.
1,758,000 baseline, an additional $28.6 million in funding
would be available. (The proposal may be accessed at
https://crsreports.congress.gov

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link to page 2 Funding the State Administration of Unemployment Compensation (UC) Benefits
https://www.dol.gov/sites/dolgov/files/general/budget/2020/
The RJM forms and instructions that state agencies use to
CBJ-2020-V1-07.pdf.)
request funds are available at
https://workforcesecurity.doleta.gov/rjm/.
If the need for contingency funds exceeds the base
appropriation but the national AWUI is less than the
State-Level Base and Above-Base Allotments
contingent appropriation threshold, then either Congress
DOL funds grants to states for the administration of their
must enact a supplemental appropriation or states have to
UC programs. These grants are allocated by DOL at the
reduce administrative expenses or provide additional state
beginning of the fiscal year and apportioned to the states
funding from a different revenue stream or state general
quarterly—as long as the economic situation of the state has
funds (as SUTA funds may only pay for UC and EB). Once
not dramatically changed. DOL typically withholds a
the AWUI is above the contingent appropriation threshold,
portion of the total state administrative appropriation to
DOL notifies the Office of Management and Budget, which
have additional funds available for states experiencing
then releases funds from the contingent appropriation.
higher workloads. These “above-base” funds are allocated
at the state’s request once it has been determined that its
Table 1 provides information on various annual
workload has increased. For FY2019 base allotments, see
appropriations proposals and enacted funding for UC state
https://ows.doleta.gov/unemploy/content/futa/
administration for FY2017-FY2019.
fy2019suia.asp.
Table 1. Funding for State Administration of
State-Level Supplemental Funds
Unemployment Compensation, FY2017-FY2019
If a portion of the above-base funds remains unallocated to
(in thousands of dollars)
the states, DOL may make supplemental funding available
to states for various uses. In recent years, such

FY2017
FY2018
FY2019
supplemental grants from DOL have supported states’
efforts related to UC program integrity and performance
Request
$2,592,019
$2,635,775
$2,492,816
improvements as well as reemployment assessments.
House
$2,660,019
$2,665,775
$2,515,816
See, for example, a September 2017, DOL Unemployment
Senate
$2,697,019
$2,637,600
$2,515,816
Insurance Program Letter 22-17, “Unemployment Insurance
Enacted
$2,687,600
$2,639,600
$2,515,816
(UI) Supplemental Funding Opportunity for State Consortia
to Modernize Tax and Benefit Systems,” September 8,
Source: Compiled by CRS from congressional laws, bills, and reports
2017, available at https://oui.doleta.gov/dmstree/uipl/
and DOL budget justifications.
uipl2k17/uipl_2217.pdf.
Notes: The House and Senate columns include amounts from the
most recent Chamber or Committee action, as compiled from the
UC Appropriations and Sequestration
CRS Appropriations Status Table at http://crs.gov/
The sequester order required by the Budget Control Act of
AppropriationsStatusTable/Index.
2011 (BCA; P.L. 112-25) and implemented on March 1,
2013 (after being delayed by P.L. 112-240), affected some
Authority for DOL Grants to States for
but not all types of UC expenditures. Most UC benefits
UC Administration
payments are not subject to the sequester reductions. But
Federal payments from DOL to the states for the
EBs and most forms of administrative funding are subject
administration of UC are authorized under Title III of the
to the sequester reductions.
Social Security Act (42 U.S.C. §502). The U.S. Labor
Secretary determines the funds that each state receives for
The FY2019 sequestration order requires a 6.2% reduction
the program’s administrative costs. These grants to the
in all nonexempt nondefense mandatory expenditures, but
states are based on (1) the population of the state; (2) an
no sequestration reductions are applicable to discretionary
estimate of the number of persons covered by the state UC
programs, projects, and activities. Thus, FY2019 UC
law and the cost of proper and efficient administration of
administrative grants to the states are not subject to a
such law; and (3) such factors as the U.S. Labor Secretary
reduction.
finds relevant.
For additional details on this issue, see the section
How DOL Determines Administrative
“Unemployment Insurance Benefits and the Sequester” in
Grants to States
CRS Report R45478, Unemployment Insurance: Legislative
Currently, DOL determines the size of each state’s
Issues in the 116th Congress.
administrative grant through the Resource Justification
Model (RJM). The RJM is designed to reflect the states’
Julie M. Whittaker, Specialist in Income Security
current methods of administering the UC program,
Katelin P. Isaacs, Specialist in Income Security
including their adoption of new technologies. The RJM
Abigail R. Overbay, Senior Research Librarian
collects data from state cost accounting records and allows
states to justify additional resources above the levels in the
IF10838
cost accounting data for the budget year.

https://crsreports.congress.gov

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Funding the State Administration of Unemployment Compensation (UC) Benefits



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Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
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https://crsreports.congress.gov | IF10838 · VERSION 3 · UPDATED

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