Maximizing a UI Program Budget and Innovative Funding Strategies

Panel Panelist – Jim Van Erden, NASWA Senior Policy Advisor Panelist – Brett Flachsbarth, Kansas Department of Labor Panelist – Julie Smith, Ohio Department of Job and Family Services Moderator – Ryan West , Iowa Workforce Development Panel

UI Administrative Financing UI Financing 101 2016

UI Administrative Funding Title III Section 302(a) Social Security Act: Secretary of Labor shall certify to the Secretary of Treasury such amounts as necessary for “proper and efficient administration” of each State’s law. The UI administration program was set up as a state and federal partnership. The federal government was given the responsibility to provide the administrative funding. The law that governs the funding for UI Administration is contained in Title 3, Section 302 (a) of the Social Security Act. In short, the law states that, “The Secretary of Labor shall . . . certify to the Secretary of the Treasury for payment to each State which has an unemployment compensation law approved by the Secretary of Labor under the Federal Unemployment Tax Act, such amounts as the Secretary of Labor determines to be necessary for the proper and efficient administration of such law during the fiscal year for which such payment is to be made . . . .”. The full text of the law can be found at the referenced link. UI Financing 101 2016 4

UI Administrative Funding Why Do We Have Less? UI Financing 101 2016

UI Continued Claims UI Financing 101 2016

State Administrative Funding Overview Federal UI Admin Budget is a lengthy process Estimate is submitted as part of the Presidents Budget to Congress Congress modifies as necessary, then passes it in a Federal Budget or most often a Continuing Resolution. Budget estimate is then allocated to the states in the UI Base Budget. States may earn additional funds by processing workload above that assigned to them in the Base Budget Developing the Federal UI Admin Budget is a lengthy process lasting some 20 months Once the Estimate is made it is submitted as part of the Presidents Budget to Congress Congress takes the President's request and modifies as necessary, then passes it in a Federal Budget or most often a Continuing Resolution. Once the budget estimate is known, it is then allocated to the states in the UI Base Budget. States may earn additional funds by processing workload above that assigned to them in the Base Budget UI Financing 101 2016

Federal Budget Formulation Workload Driven Workloads projected using statistical methods & Administration’s economic assumptions Key workload item: Continued Claims Base and Above Base Projected Continued Claims/52 get the Average Weekly Insured Unemployment (AWIU) trigger Funding in President’s Request considered adequate to process workloads up to the trigger Funds automatically available for AWIU above trigger at $28.6M per 100,000 AWIU The major thrust in budget formulation relates to known and anticipated economic developments relating to volume of UI claims. Considerable weight is given to the economic assumptions promulgated semiannually by the President's Council of Economic Advisors, the Department of the Treasury, and OMB. The Department of Labor uses these assumptions as the basis for estimating national workload levels. A key workload item is Continued Claims. This is because Continued Claims determines the Average Weekly Insured Unemployment (AWIU) trigger in the appropriation. If workloads exceed what has been anticipated in the AWIU calculation, an opportunity for the receipt of additional UI administrative funding is created. -- Base- the amount of money that the state has given each year prior to the starting fiscal year. And the amount is guaranteed. Above base- funds that the state gets after it exceeds a certain level. (due to recession or high unemployment level) Early in the history of the UI program, by agreement between the Executive Branch and the Congress, the total budget request was divided into a base budget, based upon both historical experience and the Administration's economic assumptions, and an above-base budget, designed to take into account variables in the program - largely fluctuations in the unemployment rate and attendant changes in benefit claims, both nationally and by individual state. The budget is expressed in terms of the number of average weekly insured unemployment (AWIU) that can be processed at a given funding level. The projected total AWIU is a function of the Administration’s economic assumptions and estimates made by the Office of Workforce Security's (OWS) Actuarial Team. The base AWIU is set in a manner that minimizes the risk that some states will fail to earn their allocated base for benefit functions in one or more quarters. Since FY 2001, the base AWIU has been fixed at 2.3 million AWIU. Workloads above this level are funded from the above-base budget. The base workloads for the benefit functions - initial claims, weeks claimed, eligibility reviews, non-monetary determinations, and appeals - are derived from the base AWIU level. Weeks claimed are, by definition, 52 times the AWIU. The other items are computed as a proportion of weeks claimed. The proportions used are those that would be expected to occur with the level of unemployment indicated by the base AWIU and differ from those proportions (are higher than) that would occur with average or high unemployment. Base workloads for the wage record and tax functions are the projected total workloads, since there is no division into base and above-base funding for those items. These projections are also based on the Administration's economic assumptions. The Department uses the AWIU trigger as the basis for the UI Administrative budget request. Therefore, all of the UI Administrative budget dollars relate to providing funding up to the AWIU trigger as submitted in the President’s budget. If actual AWIU exceeds the trigger during the course of the FY, Congress is obligated to provide additional funding at a rate of $28.6 million per 100,000 AWIU and pro-rated. UI Financing 101 2016

Components of Federal Admin Funding Base—Computed as part of the federal budget process and allocated to states each year Above Base—Estimated as part of the federal budget process and earned by states if they process workload above base estimates Postage/Travel—allocated as part of Base Supplemental Budget Requests (SBR) funding depends on the difference between federal budget levels and actual state usage Funding for extended benefits or special programs Funding for special activities--employee misclassification, REA/RES Contingency funding in times of higher unemployment UI Financing 101 2016

UI Administrative Funding UI Financing 101 2016

Allocating Base Funds Availability by activity: UI Financing 101 2016 Allocated base funds assigned to functional activities according to proportions reflected in RJM data and funding available for the 2.2 million AWIU base. - Claims activities - Tax/Wage Records UI Financing 101 2016

Allocating Base Funds Overview Primary drivers of base allocation levels: Each state’s projected share of national UI workloads (claims, nonmons, appeals, wage records, tax accounts) Each state’s PS/PB rates- most recent FY Time allowed for processing each budgeted workload item (MPUs, which are calculated from RJM data)- most recent FY Non-personal services spending- most recent FY UI Financing 101 2016

Allocating Base Funds Activities Funded Workloads Salaries/Benefits Non-personal Services Support Administrative Staff & Technical Services Postage UI Financing 101 2016

Allocating Base Funds UI Financing 101 2016 Funding provided in two parts: Base – costs associated with processing an AWIU of 2.2M FY 2016 & FY 2017 Initial Claims 14.750M Weeks Claimed 114.400M Non-monetary determinations 6.800M Appeals 1.120M All subject employers 7.509M All wage records 657.733M UI Financing 101 2016

Above Base Funds Same PS/PB & MPUs used for above base funding Funds for special projects funded through SBRs taken from above base resources. UI Financing 101 2016

UI Base and Above Base Funding UI Financing 101 2016

Bottom Line Authority States have authority to move allocated resources among activities. Cannot move resources in such a way as to increase above base payment. UI Financing 101 2016

Funding UI Base Administration Like other workforce programs, the level of UI base funding although “level” with respect to AWIU (note this chart is set at 2.0m AWIU but the trend would be the same for the current base level of 2.3 AWIU) but the funding level in constant dollars has show a steady decline. UI Financing 101 2016

Fully Funding the RJM UI Financing 101 2016

State Supplemental Funding UI Financing 1012016

AWIU Budget vs. Actual UI Financing 101 2016

Utilizing SBR’s UI Financing 101 2016

Contingency Funding UI Financing 101 2016

FUTA Revenue UI Financing 101 2016

Employment Service Funding UI Financing 101 2016

Maximizing a UI Budget The Kansas approach: Create a culture of fiscal responsibility Trust and empower frontline managers Careful review of grant opportunities Retain and incentivize high-performing staff Maximizing a UI Budget

Close collaboration between fiscal and agency leadership Avoid complacency on IT costs Focus on return on investment Maintain a “rainy day fund” Maximizing a UI Budget

Maximizing a UI Budget The Ohio Approach: Define the challenges Funding vs. Spending Loss of knowledge and technical expertise Aging systems State leaders not understanding program Customer expectations Maximizing a UI Budget

Maximizing a UI Budget Be transparent and inclusive All Staff meetings Empower staff to be part of the solution Explain “why” decisions are made Invite and value input and creative ideas Maximizing a UI Budget

Maximizing a UI Budget Think strategically and holistically Using LEAN and Six Sigma Cross training Push technology The importance of Data Manage customer and stakeholder expectation Maximizing a UI Budget

Maximizing a UI Budget Celebrate Successes Reduction of staff by attrition and realignment Reduction in non-payroll spending Lean events leading to elimination of waste, duplication and inefficiencies Leverage other funding source Maximizing a UI Budget

Maximizing a Budget The Iowa approach: Consistent evaluation of current and vacant positions as related to agency needs Value of cross-training and ongoing education to sustain lost technical experience Work performance standard and holding employees accountable Don’t try to reinvent the wheel when it comes to system upgrades Maximizing a Budget