November 10, 2005

CONTACT: Kevin McCormick 202-637-3465

WASHINGTON, D.C., November 10, 2005 – The national safety net for workers who lose their jobs is endangered by a Senate amendment to the Labor, HHS and Education FY 2006 Appropriations Bill (HR 3010). The amendment includes a $125 million reduction in funding for administration of the unemployment insurance and employment services (UI/ES) system. The reduction was designed to offset new spending for two New York programs which have nothing to do with unemployment insurance or employment services. UWC is urging Congress to restore the full appropriation.

Financing the state agencies that administer the federal-state UI/ES program is an entirely federal responsibility. Employers pay for the UI/ES system through a payroll tax levied under the Federal Unemployment Tax Act (FUTA). This tax is dedicated to this express purpose.

“Employers need and expect Congress to provide full funding for efficient administration of the unemployment compensation program,” said Kevin McCormick, UWC Associate Legislative Counsel. “FUTA revenue is held in the Unemployment Trust Fund because these funds are protected by law. It is irresponsible to shortchange unemployment compensation administration in order to spend more money on unrelated programs.

“This reduction comes at a particularly bad time. Even before the hurricanes, many UI/ES agencies were closing their doors and laying people off due to chronically inadequate funding. Because states no longer have the proper administration in place, they end up making more improper payments on UI claims,” McCormick said. According to the Department of Labor (DOL), the improper payment rate is almost 10% nationwide.

The amount of funding in the appropriations bill was already less than the DOL requested. “The Senate amendment really throws a wrench into the works. Insufficient funds for state UI/ES administration will result not only in more delays, errors and improper payments, but also less assistance with return to work, all of which result in an increased payout of unemployment benefits. Higher expenditures for unemployment claims in turn will result in increased outlays for federal budget purposes, because state UI benefits are included in the federal budget. Higher outlays will also result in higher state payroll taxes paid by employers to finance those benefits,” McCormick explained. “And many states will be forced to raise taxes to supplement their inadequate federal grants,” he continued.

UWC is urging Congress to ensure adequate funding for administration of the nation’s UI/ES agencies by striking the $125 million reduction in UI/ES administrative funding (and any other similar reduction) from the appropriations bill. “At a time when fiscal discipline is needed more than ever,” McCormick concluded, “it is imperative that Congress should not add to the deficit and increase taxes by reducing the FY 2006 appropriation for state UI/ES administration.”

UWC's letter to conferees on HR 3010 is available by clicking here.

-UWC-