Federal-State Unemployment Compensation Program: Unemployment Insurance Program Letters Interpreting Federal Unemployment Insurance Law

DEPARTMENT OF LABOR

Employment and Training Administration

Federal-State Unemployment Compensation Program: Unemployment

Insurance Program Letters Interpreting Federal Unemployment Insurance

Law

The Employment and Training Administration interprets Federal law

requirements pertaining to unemployment compensation (UC) as part of

its role in the administration of the Federal-State UC program. These

interpretations are issued in Unemployment Insurance Program Letters

(UIPLs) to the State Employment Security Agencies. The UIPL described

below is published in the Federal Register in order to inform the

public.

UIPL 39-97

UIPL 39-97, dated September 12, 1997, advises States of the

Department of Labor's interpretation of the Reed Act provisions of

Title IX of the Social Security Act and transmits updated instructions

and requirements related to the use of ``Reed Act'' funds as

transferred to State accounts in the Unemployment Trust Fund.

Dated: November 26, 1997.

Raymond J. Uhalde,

Acting Assistant Secretary of Labor.

Classification: UI

Correspondence Symbol: TEUFA

Date: September 12, 1997.

Directive: Unemployment Insurance Program Letter No. 39-97

To: All State Employment Security Agencies

From: Grace A. Kilbane, Director, Unemployment Insurance Service

Subject: The Reed Act Provisions of Title IX of the Social Security Act

1. Purpose. To transmit updated instructions and requirements

related to the use of ``Reed Act'' funds as transferred to State

accounts in the Unemployment Trust Fund (UTF).

2. References. Sections 303(a)(2), 303(a)(4), 303(a)(5), 303(a)(8),

901(c), 903, 904 and 1201 of the Social Security Act (SSA); the

Balanced Budget Act of 1997 (BBA), P.L. 105-33; Sections 3304(a)(3),

3304(a)(4) and 3306(f) of the Federal Unemployment Tax Act (FUTA); 29

CFR Part 97; OMB Circular No. A-87; Part IV, Sections 3000-3040 of the

Employment Security Manual (ES Manual); UIPL Nos. 5-90, 11-90 and 12-

91; GAL Nos. 4-83, 5-94 and 2-96; and Section III, Chapter 2 of ET

Handbook No. 401.

3. Background. The Unemployment Insurance Service (UIS) is issuing

``basic'' program letters for certain program areas to provide

comprehensive instructions to States in a single document. This program

letter provides guidance to States in accounting for their use of Reed

Act funds in accordance with standards established by the Secretary of

Labor. This directive is a consolidation of instructions from the ES

Manual and previous UI program and administration letters related to

Reed Act funds and now supersedes the ES Manual sections referenced

above. These instructions may later be included as a part of a Handbook

issuance.

4. Action Required. SESA administrators are requested to provide

these instructions to the appropriate staff.

5. Inquires. Inquires should be directed to your Regional Office.

6. Rescission. Part IV, Sections 3000-3040 of the Employment

Security Manual.

7. Attachments.

I. The Reed Act Provisions of Title IX of the Social Security Act;

II. Draft Language for State Laws.

Attachment I--The Reed Act Provisions of Title IX of the Social

Security Act

A. Introduction

1. Definition--Background. The term ``Reed Act'' refers to a part

of the Employment Security Financing Act of 1954, and is used in honor

of Congressman Daniel A. Reed of New York, chairman of the House Ways

and Means Committee at the time. This legislation amended Titles IX and

XII of the Social Security Act (SSA) and established the basic

structure of the Unemployment Trust Fund (UTF). The amendments to Title

IX, among other things, provided, under certain conditions, for the

transfer of excess funds in the Employment Security Administration

Account (ESAA) in the UTF to the individual State accounts in the UTF

(Section 903(a)(1), SSA). These transferred funds are commonly referred

to as ``Reed Act'' funds. To date, only three Reed Act distributions--

in 1956, 1957, and 1958--totalling $138 million, have been made to

State accounts.

Under the SSA, the primary purpose of Reed Act funds is the payment

of ``cash benefits to individuals with respect to their unemployment,

exclusive of expenses of administration'' (Section 903(c)(1), SSA).

However, subject to conditions specified in Section 903(c)(2), SSA, a

State is permitted, at its discretion, to use Reed Act funds for ``the

administration of its unemployment compensation law and public

employment offices''. (See Part E. for exception for use of Reed Act

amounts allocated for fiscal years 2000, 2001, and 2002.)

Title III, SSA, governs the use of Federal grant funds for the

administration of the unemployment compensation (UC) programs by

States. Section 302(a), SSA, addresses the uses of UC granted funds as

follows:

The Secretary of Labor shall from time to time 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

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be necessary for the proper and efficient administration of such law

during the fiscal year for which such payment is to be made.

Section 303(a)(8), SSA, requires, as a condition of receiving UC

administrative grants, that State laws include provision for: the

expenditure of all moneys received pursuant to section 302 of this

title solely for the purposes and in the amounts found necessary by the

Secretary of Labor for the proper and efficient administration of such

State law.

Section 901(c)(1), SSA, authorizes to be made available for

expenditure out of the employment security administration account, for

each fiscal year--

(A) such amounts * * * as the Congress may deem appropriate for the

purpose of--

(i) assisting the States in the administration of their

unemployment compensation laws as provided in title III (including

administration pursuant to agreements under any Federal unemployment

compensation law).

(ii) the establishment and maintenance of systems of public

employment offices in accordance with the Act of June 6, 1933, as

amended (29 U.S.C., secs. 49-49n).

State employment security agencies (SESAs) include both UC and

public employment (ES) offices and, to the extent that they operate

State activities provided for only under title III, SSA, and the

Wagner-Peyser Act, will hereafter be called the ``employment security

program''. Reed Act funds may be used to pay the administrative

expenses of the employment security program. (See Part E. for exception

for use of Reed Act amounts allocated for fiscal years 2000, 2001, and

2002.)

Initially, Reed Act funds were available for administrative

expenses up to 5 years from the date they were first credited to a

State's account. Through amendments, the time period for administrative

use was later extended to 10, 15, 25, and 35 years, and then eliminated

effective October 1, 1991.

2. Relationship to Trust Fund Operations. Reed Act funds become a

part of a State's unemployment fund, as defined in Section 3306(f) of

the Federal Unemployment Tax Act (FUTA), on the date they are

transferred to the State's account in the UTF. Such funds retain legal

status as a part of the State's unemployment fund and must be accounted

for as part of the fund until expended for unemployment compensation or

administrative expenses of the State's employment security program. As

such, Reed Act funds are subject to the ``immediate deposit'' and

``limited withdrawal'' standards (Sections 303(a)(4) and (5), SSA;

Sections 3304(a)(3) and (4), FUTA) applicable to all State unemployment

fund money.

B. Mechanics of a Reed Act Distribution

1. Conditions Necessary for Making Transfers. Whenever the

Secretary of Labor has reason to believe that conditions which are

necessary for a Reed Act transfer will occur in the next fiscal year,

the Secretary, after consultation with the Secretary of the Treasury,

shall report to Congress with a recommendation for appropriate action

(Section 902(c), SSA). Section 903(a)(1) provides that a transfer of

Reed Act funds will occur if the following conditions exist in the

Federal accounts of the UTF at the end of a Federal fiscal year (that

is, September 30):

a. The balance of funds in the extended unemployment compensation

account (EUCA) and the Federal unemployment account (FUA) have reached

their statutory ceilings, and all general revenue advances and related

interest to these accounts have been repaid, and

b. There remains in the employment security administration account

(ESAA) an amount in excess of the account's statutory ceiling.

The excess amount in the ESAA is then transferred to State accounts

in the UTF at the beginning of the following Federal fiscal year, as

explained below.

2. Amounts Transferred to State Accounts. Each State's share of the

amount to be transferred is based on the proportion of wages subject to

FUTA attributable to the State during the preceding calendar year to

the aggregate amount of wages subject to FUTA during the same year for

all States. The exact share for each State is derived by applying its

computed ratio or percentage to the total amount to be transferred.

(See Part B.3. for exception for calculating State shares with respect

to amounts for Federal fiscal years ending in 1999, 2000, and 2001.)

The Secretary of Labor determines the amount of each State's share and

certifies it to the Secretary of the Treasury. (Section 903(a)(2),

SSA.)

3. Special Distribution with Respect to Federal Fiscal Years 1999,

2000, and 2001. The Balanced Budget Act of 1997 (BBA) amended Section

903 of the SSA to cap the total amount of Reed Act transfers made with

respect to Federal Fiscal years ending in 1999, 2000, and 2001 at

$100,000,000 per year. Each State's share of the amount to be

transferred will be based on the ratio of the amount of ``funds to be

allocated to such State for such fiscal year pursuant to the base

allocation formula under title III'', SSA, to ``the total amount of

funds to be allocated to all States for such fiscal year pursuant to

the base allocation formula under Title III.'' (Section 903(a)(3),

SSA.)

4. Limitations on Transfers.

All States share in a Reed Act transfer. However, under Section

903(b), SSA, the total amount of a State's share may not be credited to

its UTF account in the following two instances:

a. The Secretary of Labor finds that on October 1 of the year in

question, a State is not eligible for certification under Section 303,

SSA, or the law of the State is not approvable under Section 3304,

FUTA.

In this instance, the State's share of Reed Act funds is credited

to the FUA and held in reserve. If the Secretary of Labor certifies

that the State is eligible for certification under Section 303, SSA,

and/or that its law is approvable under Section 3304, FUTA, before the

end of the fiscal year, the State's Reed Act share is then transferred

to its account. However, such delayed credits, although designated for

the State, earn interest for the State only from the date credited,

because they are not a part of the State's individual account until

credited. If certification and/or approval is not received before the

end of the fiscal year, the amount that would have been transferred to

the State's account remains in the FUA and becomes unrestricted as to

its use as a part of that account.

b. On October 1, a State has an outstanding balance of advances

under Title XII, SSA. (See Part C.2.)

The State's Reed Act share is reduced (but not below zero) by the

balance of unpaid Title XII advances. The amount of the reduction is

transferred to or retained in the FUA and serves to reduce the State's

balance of outstanding advances. If the State's Reed Act share has not

been reduced to zero, the remaining amount is credited to its UTF

account.

C. Use of Reed Act Funds for UC Benefit Payments

1. Use under Normal Circumstances. Section 903(c)(1), SSA, imposes

no requirements on a State's use of Reed Act funds for benefit

payments. For this purpose, funds are withdrawn from the State's UTF

account as are any other funds in the account. Logically, a State would

first expend other available funds for benefits in order to preserve

its Reed Act balance, which can be used for either benefits or, under

specified conditions, administrative expenses. Therefore, the

Department of Labor (DOL) assumes that as long as the balance of funds

in a State's UTF

[[Page 63962]]

account exceeds its unexpended balance of Reed Act allocations, the

total unused Reed Act balance remains within the account. (See Part E.

for exceptions for use of amounts allocated for fiscal years 2000,

2001, and 2002.)

2. Use upon Obtaining a Title XII Advance. Section 1201, SSA,

provides a system of ``Title XII'' advances to States with temporarily

depleted unemployment compensation reserves. One of the requirements

for a State to qualify for an advance is that the amount of the advance

be determined by considering all other amounts available in the State's

unemployment fund for benefit payment. (Section 1201(a)(3)(B), SSA.)

This includes, as explained below, unobligated Reed Act funds.

Therefore, upon obtaining a Title XII advance, a State's unexpended

Reed Act funds become subject to expenditure for benefits without

regard to whether they have been appropriated or, except as provided

below, obligated for an administrative expense. (See Part E. for

exceptions for use of amounts transferred with respect to Federal

fiscal years 1999, 2000, and 2001.)

3. Procedures to Set Aside Obligated Amounts Amounts validly

obligated, under appropriations made consistently with the Reed Act,

are considered to be unavailable for any other purpose, including the

payment of benefits upon obtaining a Title XII advance. To assure

availability for expenditure when obligations mature, Reed Act funds,

which are properly obligated for an administrative expense prior to

obtaining an advance, may be made unavailable for benefit payment if

the State elects to set aside such amounts in a UTF Reed Act ``sub-

account''. This set aside provision does not apply to appropriated

funds prior to actual obligation, because an appropriation specifies

only the purpose for which funds may be expended and does not create

transactions which require a payment of money. Funds residing in a Reed

Act sub-account are not considered available for benefits and are not

taken into account by DOL or Treasury for Title XII purposes, if

properly set aside in such a sub-account. The procedures to set aside

obligated amounts are as follows:

a. To establish an initial credit to a sub-account a State must:

1. Review each current Reed Act obligation under which there is an

unexpended balance and validate the:

--Date of enactment of the enabling appropriation (see part D.1.),

--Date and amount of each obligation (see part D.2.), and

--Unexpended balance of each obligation amount;

2. Prepare a letter certifying the amount of unexpended Reed Act

obligations as of the end of the month being used to establish the

initial credit. This amount must agree with transactions reported on

Form ETA 8403, Summary of Financial Transactions--Title IX Funds

(``Reed Act'' Money) submitted for the same month. (The total of column

III(b) less the total of column IV(a) must equal the amount of

unexpended obligations.) As documentation, attach a summary sheet

identifying each appropriation under which there is an unexpended

obligation amount. For each appropriation, indicate the purpose, dollar

amount, enactment date, legislative bill number, and the current total

dollar amount obligated.

The letter and attachment should be addressed to: U.S. Department

of Labor, Employment and Training Administration, Attention: TEUFA, 200

Constitution Avenue, N.W., Rm C-4512, Washington, D.C. 20210.

DOL will then certify the same to U.S. Treasury, subject to review

of the State's documentation.

b. To provide for on-going maintenance of the sub-account, a State

must:

1. Certify to DOL by letter on a monthly basis all new obligation

amounts and all deobligated amounts. The letter must specify the

effective date of each obligation or deobligation and identify the

corresponding appropriation(s) and/or related obligation(s) by amount

and effective date. The letter must be received by the tenth business

day of the month following the month in which the transaction occurred

and be accompanied by a Form ETA 8403 for the appropriate month:

2. When requisitioning funds from the State's UTF account,

specifically identify withdrawal amounts requested from the Reed Act

sub-account;

3. Include all Reed Act sub-account transactions on Form ETA 8403

for the month in which the transaction(s) occur; and

4. Include all Reed Act redeposits and withdrawals on each month's

written confirmation letter to Treasury of UTF account activities.

As new obligations are made or as obligations are cancelled, the

amounts obligated or deobligated will be certified in a similar manner

and credited or deducted from the State's Reed Act sub-account.

Withdrawals to pay Reed Act obligations, as specified by State

requisitions, will be charged against the Reed Act sub-account.

4. Restoration of Funds Used for Benefits. Each expenditure of Reed

Act funds, whether for benefits or administrative costs, reduces the

amount available for appropriation in accordance with Section

903(c)(2), SSA. Under certain conditions described in Section

903(c)(3), SSA, funds used to pay benefits may be restored to

availability for administrative purposes:

The Governor of a State must submit a request for

restoration of such funds to the Secretary of Labor,

Funds to be restored must have been used for benefits,

The amount to be restored does not exceed the balance in

the State's UTF account, and

The State's unemployment fund must be free of outstanding

Title XII advances when the request is made.

a. Determining amount to be restored. States which used Title XII

advances must determine the amount of Reed Act funds used for benefits.

A ``pre-approved'' amount of a Title XII advance is designated for a

State for a specific month. However, other than the amount set aside in

a Reed Act sub-account, U.S. Treasury procedures take into account a

State's entire UTF account balance (including Reed Act funds which have

not been set aside in a Reed Act sub-account), which must be reduced to

zero prior to calculating the actual amount of an advance and

transferring it to the State.

The balance of Reed Act funds (not set aside in a Reed Act

sub-account) in the State's account on the date in the first month any

portion of a Title XII advance was actually used is the amount of Reed

Act funds used for benefits and eligible for restoration.

If, after an initial advance and the resulting expenditure

of Reed Act funds for benefits, funds are recovered through

amortization (see Part F. ) and deposited in a State unemployment fund

in any subsequent month as Reed Act redeposits, then such redeposited

amounts are also considered to have been used for benefits if the State

uses any portion of a Title XII advance during that month. However, if

the State does not use any portion of a subsequent advance in a month

in which a redeposit is made, the redeposited amount remains in the

State's account as Reed Act funds but must be used only to pay benefits

while there is an outstanding balance of advances.

Example: On February 1, 1997, a State has a $500,000 balance of

Reed Act money in its account in the UTF, none of which has been set

aside in a Reed Act sub-account. A Title XII advance in the amount

of $5,000,000 has been approved for use by the State during

February. On February 9, the balance in the State's account is

$700,000 and the State

[[Page 63963]]

requests a withdrawal of $2,000,000. To transfer the State's

requisition of $2,000,000, the U.S. Treasury first deducts the

remaining $700,000 from the State's account (which includes the

$500,000 Reed Act balance), thereby reducing the State's account

balance to zero; it then adds to the account $1,300,000 from the

$5,000,000 Title XII advance for February, which it transfers to the

State along with the original $700,000. At this time, the $500,000

in Reed Act money is deemed to have been used for benefits. During

March and April, the State redeposits $100,000 to its UTF account

received as amortization payments on a Reed Act financed building.

This money is available for obligation for administrative expenses

after the State repays all advances, because under Section

903(c)(2), SSA, Reed Act funds may not be obligated while there is a

outstanding balance of Title XII advances. If the State does not

borrow again and repays all outstanding Title XII advances, the

Governor may request restoration of the $500,000 used for benefits

in February 1997. If the State borrows again in April, the $100,000

would also be used for benefits. Therefore, after all advances are

repaid, the Governor may request restoration of the $500,000 used

for benefits in February 1997 and the $100,000 used for benefits in

April 1997.

b. Procedures for restoration of funds.

States desiring restoration of Reed Act funds must prepare and

submit:

Form ETA 8403, indicating when funds were used for

benefits by showing dates (month, year) in column I and the appropriate

amounts as negative figures in column II of the report; and

A letter from the Governor of the State to the Secretary

of Labor (1) stating that the State's unemployment fund is free of

Title XII obligations and contains funds at least equal to the amount

to be restored, and (2) specifying amounts to be restored pursuant to

Section 903(c)(3), SSA.

If the Secretary of Labor determines that:

Amounts requested for restoration: (1) were used to pay

benefits and (2) do not exceed the amount in the State's UTF account,

and

All Title XII advances were repaid as of the request date;

then the Secretary will notify the Governor that the restoration is

approved. Restoration shall be effective on the first day of the month

following the date of the Secretary's notice.

D. Use of Reed act funds for Administrative Purposes

1. Legal Requirements. Reed Act funds may be used for

administrative expenses of the employment security program only if a

State adheres to the requirements specified in Section 903(c)(2), SSA.

(See Part E. for exception for use of amounts allocated for fiscal

years 2000, 2001, and 2002.)

The State legislative body must authorize the use of Reed Act money

by specific appropriation. The appropriation law: (1) Must specify the

purpose and the amount of the appropriation, (2) may not authorize

obligation of funds after the close of the two-year period which began

on the date of enactment of the law, and (3) must limit the amounts

which may be obligated to the balance of unobligated Reed Act funds in

the State's unemployment fund. Funds must be withdrawn from the State's

unemployment fund and expended after the date of enactment and must be

accounted for in accordance with standards established by the Secretary

of Labor. (See Attachment II, Draft Language for State Laws in

appropriating Reed Act funds for administrative purposes.)

2. Guidelines for Use.

a. Specificity and Limitation Requirements of an Appropriation Act.

A State appropriation act authorizing the use of Reed Act funds must

(1) limit the use of funds appropriated exclusively to administrative

expenses of the employment security program and (2) specify the purpose

for which the funds are appropriated and the amount appropriated for

each purpose. For example, the purpose of an appropriation law might

be: ``To conduct a special, statewide, intensive audit of employer

payrolls in the construction industry''.

When a State agency is administering other programs in addition to

the employment security program (e.g., a disability insurance program),

no part of the expenses of administering the other programs may be paid

with Reed Act funds. When funds are appropriated for a purpose for

which only a part is related to employment security, the appropriation

law must specify the employment security share and the amount of Reed

Act funds to be used.

Although an appropriation of Reed Act funds may exceed the balance

of available Reed Act funds at the time of the appropriation (see part

D.2.c.), the appropriation law must specify that the amount which may

be obligated at any time may not exceed the balance of Reed Act funds

available at the time of obligation in the State's unemployment fund.

b. Two-Year Limit for Obligating Funds. The two-year time limit

imposed by Section 903(c)(2)(B), SSA, within which Reed Act funds

appropriated by State law must be obligated begins on the date of

enactment of the appropriation law, not the date as of which funds were

transferred to the State's UTF account. The appropriation law must be

worded so that it is clear that funds appropriated are not available

for obligation after the two-year period. The term, ``date of

enactment'', as used in Section 903(c) (2), SSA, means the date on

which an act passed by the State legislature becomes law. The

determination of the date when such an act becomes law is a question

for the appropriate State authority. In some instances, State courts

have held that the effective date of an act is the date of enactment.

However, the substitution of ``effective date'' for the term ``date of

enactment'' in Reed Act legislation should be avoided, since an

interpretation of State law will be required to determine whether the

appropriation law meets the requirements of Section 903(c)(2)(B), SSA,

if ``effective date'' is used. The general rule is that the date of

enactment is the date on which the act is approved by the Governor of

the State. Money is ``obligated'' and an ``obligation'' is created when

an order is placed, a contract is awarded, or other transactions are

entered into which require a current or future payment of money. The

use of the term ``obligate'' instead of ``expenditure'' in Reed Act

appropriations is recommended for consistency with Section

903(c)(2)(B). The use of such terminology also allows greater

flexibility in handling Reed Act funds; money obligated before the

expiration of the two-year limit may be expended any time afterward.

c. Appropriation in Anticipation of Future Reed Act Availability. A

State legislature is not prohibited from appropriating Reed Act funds

in anticipation of a future availability of Reed Act funds. However,

such funds may not be obligated prior to becoming available even though

they have been properly appropriated by act, the enactment date of

which precedes the date of funds becoming available.

d. ETA Administrative Requirements Not Applicable. Although Reed

Act funds may be used for an administrative expense of the employment

security program, Section 903(c)(2), SSA, does not, as do Sections

303(a) and 303(a)(8), SSA, require that the expenditure be for a

purpose or in an amount found necessary for proper and efficient

administration by the Secretary of Labor. Further, since Reed Act funds

are not granted funds, the administrative requirements related to the

use of grant funds at 29 Code of Federal Regulations (CFR) Part 97 and

OMB Circular No. A-87 (60 Federal Register 26484 (May 17, 1995)) with

respect to the expenditure of Wagner-Peyser Act and Title III funds

(granted funds) are not applicable to the expenditure of Reed Act

funds.

[[Page 63964]]

Nevertheless, Reed Act funds must be expended consistent with Sections

903(c) (1) and (2), SSA. Further, where Wagner-Peyser and granted funds

are to be used to reimburse Reed Act expenditures for certain

permissible purposes, DOL prior approval may be required for such use

of granted funds. (See part F.)

e. Restrictions on Withdrawal of Funds. Reed Act funds may not be

withdrawn from a State's unemployment fund for administrative expenses,

and expenses may not be incurred until after the enactment date of the

appropriation law. In addition, funds may not be withdrawn prior to

obligation. The withdrawal of Reed Act funds must adhere to the U.S.

Treasury-State Agreement under the Cash Management Improvement Act of

1990 (CMIA).

Funds may be withdrawn only in amounts necessary to pay mature

obligations. (Section 303(a)(5), SSA; Section 3304(a)(4), FUTA.) An

obligation is mature when payment is due either by reimbursement of

expenses or contractual agreement for advance payments. Reed Act funds

withdrawn may be mingled with other administrative funds (granted

funds) if separate book accounts are maintained by the State agency to

identify the balance of Reed Act funds at all times.

3. Use of Reed Act Interest Credits. Since Section 903(c)(2)(D),

SSA, limits the amount which may be obligated for administration to

amounts transferred to the State's account, interest credits

attributable to the amount of Reed Act funds in the State's UTF account

may not be appropriated, obligated, expended, or disbursed for

administrative purposes.

4. Investment of Reed Act Funds Not Permissible. Except as provided

under the CMIA, investment is not one of the purposes for which money

withdrawn from a State unemployment fund may be used. Since Reed Act

funds are a part of the State's unemployment fund, a State law which

permits investment of such funds is inconsistent with Section

303(a)(5), SSA, and Section 3304(a)(4) of FUTA. It was the intent of

Congress, as indicated by Section 904, SSA, that money in the UTF may

be invested only by the Secretary of Treasury. This intent is

effectuated only by assuring that Reed Act moneys remain in the UTF.

E. Use of Reed Act Funds Allocated for Fiscal Years 2000, 2001, and

2002

The BBA of 1997 amended paragraph (2) of Section 903(c) of the SSA,

by adding the following sentence: ``Any amount allocated to a State

under this section for fiscal year 2000, 2001, or 2002 may be used by

such State only to pay expenses incurred by it for the administration

of its unemployment compensation law, and may be so used by it without

regard to any of the conditions prescribed in any of the preceding

provisions of this paragraph.''

Unlike previous Reed Act transfers, States are prohibited from

using Reed Act funds allocated for these three years for the payment of

UC benefits or the administration of State public employment offices.

However, States may, among other uses, use these Reed Act funds for

purchasing real property for UC purposes and may amortize these

purchases against UC grant funds. (See Parts G. and H.) Additionally,

the restrictions applicable to Reed Act funds in section 903(c)(2),

SSA, are not applicable to amounts allocated for fiscal years 2000,

2001, and 2002. This means that the amounts transferred to States for

these three years may be used without obtaining an appropriation from

the State's legislative body, as discussed in Parts D.1. and D.2.,

above. States must amend their UC laws to prohibit the use of Reed Act

funds allocated for fiscal years 2000, 2001, and 2002 for the payment

of UC benefits and may further amend their UC laws to authorize the use

of such funds for UC administrative purposes without a specific

appropriation from their State legislatures. (See Attachment II, Draft

Language for State Laws.)

F. Use of Reed Act Funds for Voter Registration Activities

Under the National Voter Registration Act (NVRA) of 1993, States

are permitted to designate State UC and ES offices as voter

registration agencies. Reed Act funds may be used to pay for the

administration of a State's UC law and public employment office. Since,

under the SSA, voter registration activities are not necessary for the

administration of the State's UC law, Reed Act funds may not be used

for those activities. However, since Section 7(a)(3)(B) of the Wagner-

Peyser Act authorizes SESAs to use ES grant monies for ``developing

linkages between services funded under this Act and related Federal or

State legislation'', if an ES office is designated as a voter

registration agency under the NVRA, then voter registration activities

of that ES office are legitimate ES administrative expenses chargeable

to ES grants. Therefore, Reed Act funds may be used to pay for these

voter registration activities.

Note: As illustrated in F., the use of Reed Act funds for SESA

administrative expenses is permissible for purposes other than those

specifically mentioned in this discussion.

G. Use of Reed Act Funds to Acquire Real Property

1. Acquisition of Real Property Deemed an Expense of

Administration. Reed Act funds may be used to acquire land and to

purchase or construct a building for use and occupancy by the State

employment security agency consistent with Section 903(c)(2), SSA. This

is an expense of employment security administration. The following are

special conditions applicable to this use of Reed Act funds:

a. Space. Since Reed Act funds may be used only for employment

security purposes, such funds may be used to pay only for that part of

the land and building space costs which are directly related to

employment security purposes, e.g., that part of the cost of a building

as is represented by the proportion of the total space occupied and

used by the employment security agency for employment security

purposes, including the cost of agency functions and other agency

programs and activities which jointly benefit Wagner-Peyser Act and

unemployment compensation programs.

Reed Act funds may not be used to pay for more land or building

space than is needed for employment security purposes. However, funds

may be used to purchase or construct a building large enough to provide

space for future expansion that reasonably can be anticipated at the

time of purchase or construction.

b. Rental of Space. Extra space which is available through the

purchase or construction of a building large enough for reasonable

expansion purposes may be leased until the time it is required for

agency use. Income from the lease may be deposited in the State's UTF

account but may not be credited as Reed Act funds. Income from a lease

may not be credited as Reed Act funds because only amounts transferred

to the State's account under Section 903(a)(1), SSA, have ``Reed Act''

status. If the cost of the space is being amortized with grant funds,

the income from the lease must be prorated between the State's UTF

account and use to reduce the State's grant costs, in accordance with

29 CFR 97.25, and the annual grant agreement.

2. Disposition of Real Property and Subsequent Use of Proceeds.

Real property acquired with Reed Act funds, which has not been

amortized with grant funds (see part F.), may be sold or otherwise

disposed of without obtaining DOL approval or disposition instructions.

When unamortized real property is no longer needed for its originally

authorized employment security purpose, States are expected to

[[Page 63965]]

use good business judgment in disposing of such property. Proceeds from

such disposal must be returned to the State's UTF account. The proceeds

will be credited as Reed Act funds up to the amount of the original

expenditure, because only amounts transferred to the State's account

under Section 903(a)(1), SSA, have Reed Act status.

When real property acquired with Reed Act funds and wholly or

partially amortized with grant funds is no longer needed for its

originally authorized employment security purposes, it must be sold,

exchanged for replacement property, or otherwise disposed of as

directed by DOL disposition instructions (29 CFR Part 97.31(c)).

Example A illustrates the sale of real property which was purchased

with both non-Federal funds and Reed Act funds, with a portion of the

Reed Act funds have been amortized with DOL grant funds.

Example A: Thirty-five years ago, $1 million of Reed Act funds

and $1 million of other non-Federal funds were used to acquire real

property at the cost of $2 million for employment security purposes.

Over the years, seventy percent (70%) of the Reed Act funds were

amortized with DOL grant funds. Today, the real property is being

sold for $6 million. The distribution of the respective equities is

based on the following computations.

Share of Each Fund Source Based on Adjusted

Contributions to Cost:

Other Funds ($2,000,000 less $1,000,000).. $1,000,000 = 50%

DOL Grant Funds (70% x $1,000,000)........ 700,000 = 35%

Reed Act Funds ($1,000,000 less $700,000). 300,000 = 15%

------------

Total Cost............................ 2,000,000 100%

Equity in Property by Fund Source:

Other Funds equity (50% x $6,000,000)............... $3,000,000

DOL equity (35% x $6,000,000)....................... 2,100,000

Reed Act equity (15% x $6,000,000).................. 900,000

---------------

Total Sale Proceeds............................. 6,000,000

(29 CFR 97.31(c)(2).)

See Part F.1. for an explanation of how DOL (Federal) equity was

created in the property.

a. Replacement. A State may use proceeds from the sale of real

property as an offset to the purchase price of a replacement property.

In a replacement transaction, it is not necessary to make another

appropriation of Reed Act funds to obtain the replacement property if

the use of such funds conforms in all respects to the original

appropriation authorizing the acquisition of the disposed property and

is permissible under State law. In the interpretation of State Reed Act

appropriations, the State is the final arbiter of its State law. Such

transactions may not result in a new obligation of Reed Act funds. If

the property being replaced is worth more than the replacement, the

excess cash proceeds received or equivalent cash shall be handled as in

Part 2.b.

b. Use of Cash Proceeds. The Reed Act share of cash proceeds

received from the sale or other disposition of real property must

immediately be deposited in the State's account in the UTF (Section

303(a)(4), SSA, and Section 3304(a)(3), FUTA). Similarly, any portion

of the Reed Act proceeds from a disposition that is not used for

replacement property must be immediately deposited in the State's UTF

account. However, only proceeds equivalent to the original cost of the

property may be credited to the State's account as Reed Act funds.

Earnings or profit resulting from real estate transactions may not be

credited as Reed Act funds because only amounts transferred to a State

as provided in Section 903(a)(1), SSA, have ``Reed Act'' status. The

remainder of cash proceeds, if any, must be used for the payment of

unemployment benefits or other expenditures consistent with the

withdrawal standard. Failure to immediately deposit the applicable

proceeds into the UTF may be cause for the Secretary of Labor to

commence conformity/compliance proceedings and to assess interest on

the amount outstanding. Example B illustrates the proper distribution

of the Reed Act share of sales proceeds in Example A.

Example B:

Distribution of Reed Act Share of Sales Proceeds:

Reed Act contribution to acquisition cost........... $1,000,000

Less: Adjusted grant funds contribution to

(amortization of) acquisition cost................. 700,000

---------------

Adjusted Reed Act Contribution...................... 300,000

===============

Reed Act equity in sales proceeds................... 900,000

Less: Adjusted Reed Act contribution (credited to

UTF as Reed Act funds)............................. 300,000

---------------

Balance of Reed Act equity (credited to UTF for

payment of unemployment compensation and other

expenditures consistent with the withdrawal

standard).......................................... 600,000

H. Reimbursement of Reed Act Expenditures From Granted Funds

1. Extent of Reimbursement. UI and ES grant funds may be used to

reimburse the State's Reed Act expenditures to the extent that the

costs meet the requirements for use of funds authorized by the Wagner-

Peyser Act and Title III. (29 CFR Part 97; OMB Circular No. A-87.) To

date, reimbursement through amortization arrangements has been

authorized for:

the cost of obtaining land and constructing or purchasing

a building for employment security purposes (real property),

capital improvements to State-owned office buildings, to

the extent such buildings are used for employment security purposes,

and

the acquisition of automatic data processing (ADP)

installations.

Reed Act funds expended for the above purposes may be amortized

with grant funds because these expenditures meet the administrative

requirements related to the use of grant funds at 29 CFR Part 97 and

OMB Circular No. A-87 with respect to the expenditure of Wagner-Peyser

Act and Title III funds.

[[Page 63966]]

The amortization of Reed Act expenditures for the acquisition of

real property and capital improvements with grant funds creates Federal

equity. ``Federal equity'' means the Federal government owns a share of

the fair market value of real property. Therefore, when the property

ceases to be used for employment security purposes, DOL recaptures the

Federal equity. The value of the Federal equity is based on the

adjusted contribution of UI and ES grant funds to the acquisition cost

of the property and any capital improvements that materially increase

the value or useful life of real property.

2. Deposit and ``Reappropriation'' of Reimbursed Reed Act Funds.

Grant funds used to reimburse a State for Reed Act expenditures must be

deposited immediately to the State's UTF account (Section 303(a)(4),

SSA; Section 3304(a)(3), FUTA), and credited to Reed Act funds used in

the project. Where a reimbursement relates to a particular project

within an appropriation involving two or more years of Reed Act

allocations, the reimbursement is applied first to the earliest Reed

Act allocation used in the project and thereafter to the next earliest

in consecutive order. Reimbursed funds may be ``reappropriated'' by the

State legislature for other Reed Act administrative purposes.

I. Unemployment Trust Fund (UTF) Transactions

1. Withdrawal of Reed Act Funds. U.S. Treasury requirements and

procedures for withdrawal of Reed Act funds from a State's UTF account

for payment of benefits and administrative expenses are the same as for

regular benefit funds through Treasury's on-line requisition system. To

withdraw Reed Act funds which have not been ``set aside'' in a Reed Act

sub-account, the State must include the amount being withdrawn in the

total requisition for regular benefits. There is a specific line on the

electronic requisition screen for withdrawal of Reed Act funds which

have been ``set aside'' in a Reed Act sub-account. The total amount of

administrative Reed Act funds being withdrawn and the account and

location of its deposit must be noted in the ``special instructions''

section of the screen.

2. Deposit of Reed Act Fund Reimbursements. As noted in part F.2.,

grant funds used to reimburse Reed Act expenditures must be returned

immediately to the State's UTF account. The following are procedures

for deposit of such reimbursements:

The State agency must prepare a voucher against the

administrative fund account in the amount of the reimbursement to be

made.

The ``payee designation'' must be the State employment

security agency, or whatever designation is appropriate to permit

deposit to the clearing account.

After deposit to the clearing account, the reimbursement

must be included in the next transfer of funds from the clearing

account to the State's UTF account.

The same procedures for depositing reimbursement amounts will be

used for returning any Reed Act funds which have been withdrawn for an

administrative purpose but not used. (See part D.2.e.)

J. Accounting for Reed Act Funds

1. Accounting Records. Each State agency will maintain an

accounting system with respect to Reed Act funds which will provide

information for required DOL reports. The accounting records will

contain:

a. Date and amount of each allocation or transfer of Reed Act funds

to the State's UTF account, identified by fiscal year and totalled.

b. Date and amount of each expenditure of Reed Act funds for

benefits and the fiscal year in which the funds charged with such

expenditure were transferred to the State's account.

c. For each appropriation of Reed Act funds for costs of

administration:

Date of enactment of the appropriation law;

Amount appropriated by the appropriation law;

Date and amount of each obligation and expenditure of Reed

Act funds with respect to each project authorized by the appropriation

law and the Reed Act funds against which each obligation is charged;

Date and amount of each withdrawal from the UTF account

with respect to each project authorized by the appropriation law;

Date and amount of each return (and credit) to the UTF

account of withdrawals not expended;

Date and amount of all receipts from the sale or other

disposition of an employment security building financed with Reed Act

funds or the lease of space therein;

Date and amount of each reimbursement of Reed Act funds by

way of amortization with grant funds with respect to each project

authorized by the appropriation law; the crediting of each

reimbursement to the UTF account, and the balance which remains to be

reimbursed (or amortized); and

Total of funds obligated pursuant to each appropriation,

the total unobligated balance of each appropriation, and total charges

against Reed Act funds.

d. Control totals for each transaction recorded for each

appropriation in c. above.

e. Each entry in the records must be supported by appropriate

documentation, and reference to such documentation must be made in the

records.

2. Approval of Vouchers.

Each obligation and voucher for expenditure of Reed Act funds

appropriated for expenses of employment security administration must be

approved by the administrative head of the State agency or a duly

authorized agent. All such documents or certified duplicates or copies

thereof will be filed in the administrative office of the State agency.

K. Reed Act Funds Reporting Requirements

All transactions involving Read Act funds must be reported on Form

ETA 8403, Summary of Financial Transactions--Title IX Funds (``Reed

Act'' Money) in accordance with instructions in ET Handbook No. 401,

Section III, Chapter 2. Redeposits to and withdrawals from the UTF

account are also reported on lines 14 and 41, respectively, of Form ETA

2112, UI Financial Transaction Summary. Instructions for Form ETA 2112

are contained in ET Handbook No. 401, Section II, Chapter 1.

L. OMB Approvals

Reporting requirements for Form ETA 8403, Summary of Financial

Transactions--Title IX Funds (``Reed Act'' Money) and Form ETA 2112, UI

Financial Transaction Summary are approved by the Office of Management

and Budget (OMB) under OMB Approval No. 1205-0154 (expiration date:

February 28, 2000). OMB Approval is being sought for procedures to

request restoration of Reed Act funds used for benefits (part C.5.b.)

and procedures to establish and provide on-going maintenance to a Reed

Act ``sub-account'' (part C.4.). When approval is received for these

collections, notification will be issued.

Note: States are not required to respond to these collections of

information unless a currently valid OMB approval number is in

effect.

Attachment II--Draft Language for State Laws

I. Draft Statutory Language

The following language will allow States to use either of the Reed

Act

[[Page 63967]]

appropriation alternatives provided after this draft statutory

language.

(f) Money credited under Section 903 of the Social Security Act.

(1) Money credited to the account of this State in the Unemployment

Trust Fund by the Secretary of the Treasury of the United States of

America pursuant to Section 903 of the Social Security Act may not be

requisitioned from this State's account or used except for the payment

of benefits and for the payment of expenses incurred for the

administration of this State's unemployment compensation law and public

employment offices. Such money may be requisitioned pursuant to Section

[insert section referring to withdrawals from the Unemployment Trust

Fund] for the payment of benefits. Such money may also be requisitioned

and used for the payment of expenses incurred for the administration of

this State's unemployment compensation law and public employment

offices but only pursuant to a specific appropriation by the

legislature and only if the expenses are incurred and the money is

requisitioned after the date of enactment of an appropriation law which

specifies the purpose(s) for which such money is appropriated and the

amount(s) appropriated therefor. Such appropriation is subject to the

following conditions:

(A) The period within which such money may be obligated is limited

to a period ending not more than two years after the date of the

enactment of the appropriation law; and

(B) the amount which may be obligated is limited to an amount which

does not exceed the amount by which (i) the aggregate of the amounts

transferred to the account of this State pursuant to Section 903 of the

Social Security Act exceeds, (ii) the aggregate of the amounts used by

this State pursuant to this Act and charged against the amounts

transferred to the account of this State.

(2) For purposes of subsection (1)(B), the amounts obligated under

an appropriation for the above-described administrative purposes shall

be charged against transferred amounts at the exact time the obligation

is entered into.

(3) The appropriation, obligation, and expenditure or other

disposition of money appropriated under this subsection shall be

accounted for in accordance with standards established by the United

States Secretary of Labor.

(4) Money appropriated as provided herein for the payment of

expenses of administration shall be requisitioned as needed for the

payment of obligations incurred under such appropriation and, upon

requisition, shall be deposited in the employment security

administration fund from which such payments shall be made. Money so

deposited shall, until expended, remain a part of the unemployment fund

and, if it will not be immediately expended, shall be returned promptly

to the account of this State in the Unemployment Trust Fund.

(5) Notwithstanding paragraph (1), moneys credited with respect to

Federal fiscal years 1999, 2000, and 2001, shall be used soley for the

administration of the UC program and are not subject to appropriation

by the legislature.

II. Draft Appropriation Language

Two suggested Reed Act appropriation bills are presented. Either

bill may be used with the draft statutory language presented earlier.

The first permits States with statutory Reed Act provisions to

incorporate the requirements of Section 903(c)(2), SSA, by simply

referencing these statutory provisions. This approach may be better for

States where the Reed Act appropriation may be contained in a larger

appropriation act or where State appropriation law limits the content

of any single appropriation bill. The second details the requirements

of Section 903(c)(2) and is similar to Reed Act appropriation bills

recommended by this Department in the past. Since Reed Act moneys

transferred with respect to Federal fiscal years 1999, 2000, and 2001,

need not be appropriated by the State legislature, States need not

follow this draft language for such moneys.

Alternative 1

AN ACT APPROPRIATING MONEY FOR ERECTING A BUILDING FOR USE BY [Name

of State employment security agency]

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF [Name of State]

SEC. 1. There is hereby appropriated out of funds made available to

this State under Section 903 of the Social Security Act, as amended,

the sum of $________, or so much thereof as may be necessary, to be

used, under the direction of the [name of State employment security

agency or the agency responsible for building construction] and subject

to the requirements of Section [reference section of State code

containing Reed Act provisions] of the State Code, for the purpose of

acquiring land and erecting a building thereon for the use of [name of

State employment security agency] and for such improvements,

facilities, paving, landscaping, and fixed equipment\1\ as may be

required for its proper use and for operation by the [name of State

employment security agency].

---------------------------------------------------------------------------

\1\ ``Fixed equipment'' refers to such things as a central

heating and/or air conditioning plant which becomes an integral part

of the building and may be included in the cost of the building

reimbursable out of granted funds.

---------------------------------------------------------------------------

SEC. 2. Section 1 shall take effect and be in force from and after

passage.

Alternative 2

AN ACT APPROPRIATING MONEY FOR ERECTING A BUILDING FOR USE BY [Name

of State employment security agency]

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF [Name of State]

SEC. 1. There is hereby appropriated out of funds made available to

this State under Section 903 of the Social Security Act, as amended,

the sum of $________, or so much thereof as may be necessary, to be

used, under the direction of the [name of State employment security

agency or the agency responsible for building construction], for the

purpose of acquiring land and erecting a building thereon for the

administration of this State's unemployment compensation law and public

employment offices and for such improvement, facilities, paving,

landscaping, and fixed equipment \2\ as may be required for its proper

use and operation.

---------------------------------------------------------------------------

\2\ See footnote \1\ above.

---------------------------------------------------------------------------

SEC. 2. No part of the money hereby appropriated may be obligated

after the expiration of the 2-year period beginning on the date of the

enactment \3\ of this act.

---------------------------------------------------------------------------

\3\ The Department of Labor recommends that the phrase ``date of

enactment'' be used here, since Section 903(c)(2)(B) of the Social

Security Act requires that use of the appropriated money be limited

to a 2-year period beginning with such date.

---------------------------------------------------------------------------

SEC. 3. The amount obligated \4\ pursuant to this act shall not

exceed at any time the amount by which (a) the aggregate of the amounts

transferred to the account of this State pursuant to Section 903 of the

Social Security Act exceeds (b) the aggregate of the amounts obligated

for administration and paid out for benefits and required by law to be

charged against the amounts transferred to the account of this State.

---------------------------------------------------------------------------

\4\ Section 903(c)(2)(D) requires that this limitation be

applied to money obligated, even though a State may choose to apply

the 2-year limitation to expenditures.

---------------------------------------------------------------------------

SEC. 4. This Act shall take effect and be in force from and after

passage.

[FR Doc. 97-31669 Filed 12-2-97; 8:45 am]

BILLING CODE 4510-30-M