Federal-State Unemployment Compensation Program; Unemployment Insurance Performance System

SUMMARY: The purpose of this notice is to obtain comments prior to

proposing a streamlined regulation regarding a new, more unified system

for improving Unemployment Insurance (UI) operational performance. The

system, called UI Performs, responds to the call of the Vice

President's National Performance Review for a more unified approach to

improving UI performance. The broad goal of UI Performs is to improve

continuously the quality of services to the UI system's ultimate

customers (claimants and employers). It does this by giving both

Federal and States partners a more unified performance management

system, enabling them to manage more effectively and plan more

innovatively.

DATES: The Department invites written comments on this notice. Comments

are to be submitted by March 17, 1997.

ADDRESSES: Submit written comments to Mary Ann Wyrsch, Director;

Unemployment Insurance Service, Employment and Training Administration

(ETA); U.S. Department of Labor; 200 Constitution Avenue, N.W., Room S-

4231; Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT:

Burman Skrable, Unemployment Insurance Service, ETA; U.S. Department of

Labor; 200 Constitution Avenue, N.W., Room S-4522; Washington, DC

20210. Phone (202) 219-5922 (this is not a toll-free number); fax (202)

219-8506.

SUPPLEMENTARY INFORMATION:

1. Background

The legislative framework for the Federal-State UI program reserved

many decisions to the States, such as specifying most criteria for

eligibility and establishing most parameters of the tax structure.

However, it gave the Secretary of Labor responsibility for ensuring

compliance with minimum Federal guidelines and for assuring proper and

efficient administration of the system. The Secretary's role in

carrying out this responsibility has been interpreted to include the

assurance of certain minimum levels of operational performance. Over

time, the U.S. Department of Labor (DOL) increasingly exercised the

Secretary's responsibilities for performance oversight by measuring and

assessing program outputs instead of examining processes. It also

spelled out some Federal performance requirements in regulations, as

indicated below.

Under the impetus of DOL, systems for measuring and improving

various facets of UI performance were developed over the years and

reflected the conditions of the time. Some highlights of this

development include the following:

Since the 1930s, States have been required to submit

financial and activity reports to the Department;

In the 1960s, States assessed various aspects of their

performance using a self-appraisal system developed by DOL;

In 1971, the Supreme Court issued its decision in

California Human Resources Department v. Java concerning prompt benefit

payments and appeals. This decision led DOL to issue regulations, at 20

CFR Parts 640 and 650, specifying Secretary's Standards (SSs) that

benefit payments and appeals decisions be made as quickly as

``administratively feasible;''

Later in the 1970s, the Performance Standards project

developed the set of performance measures and numerical criteria now

called the Quality Appraisal (QA) system. The QA system contains the

measures of timeliness and numerical criteria considered to satisfy the

SSs for first payment timeliness and lower-level appeals. It also

contained other timeliness, quality and accuracy measures, including

the Quality Performance Index (QPI) for rating the quality of

nonmonetary determinations. Numerical criteria called Desired Levels of

Achievement (DLAs) were set for some of these measures;

Also in the 1970s, the QA system was tied to the budget

process: as a condition for obtaining administrative grants, all States

pledged to meet certain performance levels and to develop corrective

action plans (CAPs) if they failed;

In 1981, the workload data upon which administrative

budgets were formulated and allocated began to be validated through the

Workload Validation program;

Also in 1981, benefit accuracy was first assessed by

field-verifying sampled payments through the Random Audit (RA) program.

Desiring to improve the accuracy of benefit payments from the levels RA

showed, the Department expanded RA into Benefits Quality Control (BQC)

and required its performance by regulation, at 20 CFR Part 602;

In the late 1980s, DOL initiated Revenue Quality Control

(RQC) to revise the QA tax measures and the Performance Measurement

Review to improve the QA benefits timeliness and quality measures.

Thus, by the early 1990s, the performance system of the UI program was

characterized by the following: there were two explicit SSs (for

benefit payments timeliness, and for lower and higher authority appeals

promptness) in regulation; numerical criteria called ``DLAs'' were set

for other measures under the Secretary's authority for oversight of the

system; systems for measuring benefit payment accuracy and tax

operation (revenue) quality were established by regulation, but these

contained no criteria indicating satisfactory performance; and other

elements of a performance system, such as reporting and preparation of

an annual performance and budget plan, were established under the

Secretary's authority. A small fraction of reported data was validated.

2. Impetus for Change

A 1993 National Performance Review (NPR) issue paper on BQC

summarized a number of concerns about the way UI performance was

measured and improved. It called on the Department to ``reexamine the

present mix of systems for improving the performance of the

unemployment insurance program and devise a unified strategy that

improves its effectiveness'' (Paper DOL21, in NPR, Creating a

Government that Works Better and Costs Less: Department of Labor,

September 1993, at 88).

Although the various UI performance measurement systems and

programs functioned well in many regards, experience showed the need

for improving them. The numeric criteria in regulations had two major

deficiencies. First, they were indicative of what the Department

considered to be administratively feasible at the time the regulations

were issued. However, over the years some States have improved their

performance to the extent that the criteria now appear to be set too

low. As an example, during 1980, 34 States met the criterion of making

87 percent of intrastate first payments within the 14/21-day timeliness

standard, but only 4 States made as many as 93 percent of payments

timely. By 1995, 50 States met

[[Page 2545]]

the 87 percent criterion, and 27 States paid at least 93 percent

timely.

Second, these fixed criteria could be interpreted to mean that

performance above the criteria was neither needed nor expected, which

does not encourage continuous improvement. Meanwhile, some States

continued to perform at substandard levels. For example, in appraisal

year 1995, 11 States failed to meet the criterion of disposing of 60

percent of lower authority appeals within 30 days (down from 22 in

1980). However, 15 States were able to dispose of more than 80 percent

within 30 days.

Other performance measures also had problems. A 1989 General

Accounting Office (GAO) report notes that some of the QA performance

indicators ``may be inappropriate and provide misleading indications of

service quality, wherein an improvement in the measure could actually

be indicating a decline in service quality.'' They cited as an example

the field audit penetration rate. The report also concluded that the QA

benefits measures ``overemphasize timeliness as opposed to other, more

qualitative aspects of program performance.'' (GAO Report GAO/HRD-89-

72BR at 44.) At the same time, some areas are not measured at all. For

example, the accuracy of paid claims is measured, but not of decisions

to deny, (the samples of nonmonetary determinations rated for quality

using the QPI include denials, but the scores are not reported

separately). There was no single system linking performance

measurements to corrective actions.

3. Development of a New Approach: the UI Performs System

Responding to the NPR call to reexamine current performance

improvement systems and develop a unified strategy to improve its

effectiveness, in 1993, the DOL assembled the Performance Enhancement

Workgroup (PEWG). This was a team of Federal UI Service managers and a

corresponding team of senior State employment security personnel

(designated by the Interstate Conference of Employment Security

Agencies) asked to address jointly various concerns regarding the

improvement of UI operational performance. The group met fifteen times

in two years to develop the outlines of what it would call the UI

Performs system. It set itself the broad goal of developing an approach

by which the UI system could continuously improve services to the

system's ultimate customers (claimants and employers) by encouraging

both Federal and State partners to unify their approach to planning and

operational improvement. The PEWG proposed embodying key elements of

the UI Performs system in a short, streamlined regulation, reserving

detail (e.g., definitions of measures and numerical benchmarks) to

implementing issuances such as handbooks so that they could be changed

more easily as needed. The system would rest on the following six main

building blocks.

Block One: Partnership Principles

The basic principles are maintaining mutual trust and respect,

working as partners with complementary roles, setting high standards,

and teamwork. The partners are expected to work closely together in

developing measures, setting criteria, and planning for improved

performance.

Block Two: Complementary Roles

Federal law gives the Federal partner primary responsibility for

leadership of the UI system as a whole, for providing adequate

administrative resources, and for oversight of State operations to

ensure that the requirements of Federal law are met. States are

responsible for creating their own UI laws in conformity with the

requirements of Federal law and conducting basic UI operations in

accordance with their laws. This block recognizes the existence and

wisdom of the complementary functions in the Federal-State UI

partnership.

Block Three: Key Performance Objectives and Measures

The workgroup conducted an extensive review of UI activities and

identified a set of customer service objectives for which the DOL and

the States should both be held accountable. They then decided how

performance relative to those objectives would be measured. Most of the

performance measures, which included those used for Secretary's

standards, are already being implemented by States. The group then

designated certain of these measures for the eventual setting of

national performance criteria. National criteria are intended to

reflect the same level of performance in all States, so the measures

must have the same meaning in all States. They also had to represent

basic performance objectives, and so all relate to Federal conformity

and compliance requirements. The workgroup's list of key performance

objectives, how they are to be measured, and which measures should have

national performance criteria set for them is contained in UIPL 41-95

(August 24, 1995), a copy of which can be obtained from the contact

person listed in the summary. The PEWG also recommended that

objectives, measures and criteria be reviewed periodically and adjusted

if necessary.

Block Four: A continuous Improvement (CI) Cycle

States will use the results of past performance to help set future

directions and take actions through the planning process to improve

performance continuously. Federal responsibilities include setting

national priorities; working with each State in creating its plan and

setting its planning targets; approving the plan; assisting with

analysis of results; providing technical assistance to States needing

or requesting it, based on their past or planned performance; and

taking action to ensure States meet national performance criteria.

To ensure CI, a new annual planning process would replace the

Performance Budget Plan process. Called the State Quality Service Plan

(or SQSP) it would be the primary vehicle through which the State,

working closely with Federal staff, assesses its situation and sets

priorities for improvement while maintaining performance in other

areas. Federal UI performance objectives for the planning cycle would

set the stage for this State-specific assessment and priority-setting

process.

The proposed cycle envisions a more active Federal role in

shepherding and motivating performance improvement. This includes

technical assistance, either provided directly or brokered from one

State to another. The DOL will establish mechanisms for identifying and

acknowledging superior performance. It will also work actively to

identify deficient performers. Initially, it will try to get poor

performers to improve their customer service through the SQSP process.

If this routine mechanism proves insufficient, DOL would take steps

which may lead all the way to conformity/compliance actions or other

actions under Federal law.

Block Five: A Simplified Regulation

The system envisions a relatively short, general regulation

(outlined below). Details on key measures and national Federal

performance criteria based on certain of the measures would be

contained in implementing issuances such as handbooks so they can be

updated as necessary. State staff would be involved in crafting all

changes and all States would be given opportunity to comment.

Implementing the measures and performing up to criteria levels would be

explicit parts of the States' administrative grant agreements.

[[Page 2546]]

Block Six: Front-end Activities and Strategies

To succeed, the UI Performs program requires the development of

skills and other capacities at both Federal and State levels. Key

capabilities include data and systems analyses and the computer

capacity and program knowledge to support them. The DOL will both work

to enhance its own capabilities in these areas and identify particular

skills in various States which can be drawn upon when needed.

The outlines of this new approach have been presented to the UI

system and its stakeholders for comment in Unemployment Insurance

Program Letter (UIPL) 41-95 (August 24, 1995), and its underlying basic

principles in UIPL 46-94 (September 30, 1994). Copies are available

from the contact person listed in the summary above. The DOL is now in

the process of ``rolling it out'' by developing and implementing the

various components. The main tasks are: Completing the development of

new measurement initiatives, including an approach to validating

required reports data; modifying the BQC program and reducing its

resource requirements; developing, in consultation with States,

measurements to fill performance measurement gaps, including denied

claims accuracy; developing in consultation with States benchmarks or

performance floors for certain key measures; developing the new annual

planning process including mechanisms for the negotiation and approval

of State-specific objectives; developing a process for the

identification, development and brokering of performance improvement

skills; development a system of rewards for recognizing exceptional

performance; and developing a regulatory base for the UI Performs

system. Full development of the system is expected to stretch into

1999.

4. The UI Performs Regulation

An integral part of the overall design of the UI Performs system is

a new regulation. The Department envisions a streamlined regulation

that would propose the following:

a. Replace/incorporate key features of 20 CFR 602, 640, and 650, in

a more cohesive and, if possible, shorter form;

b. Set forth the goals (e.g., continuous improvement, service to

ultimate customers) and requirements (e.g., greatest performance that

is administratively feasible, performance of certain activities

necessary for proper and efficient administration) of the unified

strategy embodied in the UI Performs system;

c. Set forth what the UI Performs system requires States to do,

including:

Prepare an Annual Performance Plan (the SQSP) as the basis

for receiving administrative grants;

Conduct certain performance measurement activities,

identified or developed through a consultative process, and report data

to DOL;

Validate certain key measures;

Operate the UI program (pay benefits, collect taxes) with

the highest quality (accuracy, timeliness, completeness, adherence to

procedure) that is administratively feasible; and

Take effective action to ensure performance standards are

met;

d. Establish Federal performance criteria, developed through a

consultative process, for certain measures;

e. Provide that, in determining whether to recommend to the

Secretary the commencement of proceedings to determine whether tax

credits and/or administrative grants (as appropriate) should be

withheld on account of sustained deficient performance, the Department

will evaluate all the facts relating to a State's performance in the

deficient area; and

f. Require Periodic Review of Measures and Criteria to ascertain

whether the measures are useful and the criteria are appropriate and

adjust either as needed.

Comments Solicited

Reviewers are encouraged to comment on all items in the proposed

regulatory design and to pay particular attention to the specific

questions below.

1. This regulation would propose, as Federal requirements, the

basic core of performance system. The core components would be: (a)

Certain performance measurements or measurement systems; (b) validation

of certain reported data elements; (c) a performance plan on an annual

cycle; and (d) the premise that performance must be of the greatest

quality administratively feasible, implemented in practice by a

mutually agreed-upon system of nationwide performance criteria for

States to meet. Does this characterization include all appropriate core

requirements for the UI Performs system?

2. UIPL 41-95 solicited comments from States and stakeholder groups

on proposed UI Performs measures and measures for which national

performance criteria would be set. State staff will participate in

setting actual performance criteria and the system will be asked to

comment on them. The Department offers this Notice as an additional

opportunity to comment on what aspects of the UI program should be

measured, how these aspects should be measured and what constitutes

acceptable performance.

3. Once measures and performance criteria have been agreed upon,

the means ensuring adequate performance must be addressed. At present,

the Secretary may withhold administrative grants or the Federal

Unemployment Tax Act offset credit after notice and an opportunity for

a hearing have been provided to the States.

(a) What actions, short of the total termination of tax credits or

grants, are appropriate to bring about compliance with performance

requirements?

(b) Should there be available to the Secretary less drastic

remedies such as a more graduated series of sanctions for sustained

poor performance, and if so, what specific sanctions?

(c) How should ``sustained poor performance'' be defined?

4. Should the Secretary provide rewards for good performance? If

so, what specific rewards and under what conditions?

5. Should the regulation provide for the waiver of measurement

requirements that are not necessary for the proper and efficient

administration of a State's UI program? If so, under what conditions

should such waivers be granted?

List of Subjects

20 CFR Part 602

Grant programs, Labor.

20 CFR Parts 640 and 650

Unemployment compensation.

Dated: January 10, 1997.

Timothy M. Barnicle,

Assistant Secretary of Labor.

[FR Doc. 97-1102 Filed 1-15-97; 8:45 am]

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