US DOL Taking First Steps to Evaluate State Use of Alternative Financing to Repay UI Title XII Loans

//US DOL Taking First Steps to Evaluate State Use of Alternative Financing to Repay UI Title XII Loans

US DOL Taking First Steps to Evaluate State Use of Alternative Financing to Repay UI Title XII Loans

On December 11, 2017 the US Department of Labor released for comment a proposal for authority to review the use of alternative financing of the repayment of federal UI loans. See https://www.gpo.gov/fdsys/pkg/FR-2017-12-11/pdf/2017-26668.pdf  This is the first step for US DOL to become educated about the use of alternative financing. Because a significant number of states have opted to repay Title XII loans through the use of alternative financing it is more difficult for US DOL and the Office of Management and Budget to project federal outlays and revenue associated with loans under Title XII of the Social Security Act. There is a concern that states may or may not be making sound choices in the use of alternative financing and the private bond market. There may also be a concern that through the use of alternative financing states may be choosing to reduce the reserves in state UI trust funds, reducing solvency as currently measured by US DOL, and reducing funds available in the unemployment trust fund that would otherwise be part of the federal unified budget.

States use bonds in the private market and alternative financing in a variety of circumstances and there is considerable expertise within the states and within the private bond market to evaluate the use of alternative financing and the repayment of Title XII loans.  However, there is no current reporting requirement to US DOL related to alternative financing.

Written comments must be submitted to the office listed in the addressee section below on or before February 9, 2018.

ADDRESSES: You may submit comments by either one of the following methods: Email: ChiefEvaluationOffice@dol.gov; Mail or Courier: Scott Gibbons, Chief Evaluation Office, OASP, U.S.  Department of Labor, Room S–2312, 200 Constitution Avenue NW., Washington, DC 20210.

Background

Historically, States have financed shortages in meeting obligations to pay UI benefits by borrowing from the Federal Unemployment Account (FUA) in the Unemployment Trust Fund (UTF) maintained by the United States Treasury. Over the last several recessionary cycles, an increasing number of States have opted to utilize private markets to make up UTF shortfalls, instead of taking traditional Federal loans.

In this past recession, of the thirty-six States that needed to borrow funds to pay UI benefits, eight used private sector instruments (i.e., seven States issued bonds and one State used short-term bank loans). Numerous considerations must be weighed in order to determine which option in financing UTF account deficits should be employed under what circumstances to result in an optimal outcome.

However, there is little research examining or comparing the methods available to States for financing UTF account deficits, and specifically lacking is comprehensive research that analyzes the cost differences between taking Federal loans and using alternate sources. As a result, State UTF account administrators are in a position where they may need to make rapid decisions based on little evidence or understanding of available options.

DOL is sponsoring an analysis of costs related to UI deficit financing, and the planned data collection includes a qualitative interviews with Federal and state officials who play roles in the deficit financing process, as well as interviews with finance professionals and bond underwriters to understand their perspectives. This information will be used, along with materials from a literature search and environmental scan, to better understand the factors that influence state decisions between possible financing methods.

This Federal Register Notice provides the opportunity to comment on proposed data collection instruments that will be used during structured interviews to identify factors involved in decisions concerning which deficit financing methods are used, as well as describing the perceived benefits and potential challenges in their use.

Desired Focus of Comments

Currently, DOL is soliciting comments concerning the above data collection to support an analysis of alternative strategies for UI deficit financing. DOL is particularly interested in comments that do the following:

  • Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility.
  • Evaluate the accuracy of the agency’s estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used.
  • Enhance the quality, utility, and clarity of the information to be collected.
  • Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology for example, permitting electronic submission of responses.

Current Actions

At this time, the Department of Labor is requesting clearance for structured interviews.

By |2017-12-15T02:48:30+00:00December 11th, 2017|Categories: Unemployment Insurance|Comments Off on US DOL Taking First Steps to Evaluate State Use of Alternative Financing to Repay UI Title XII Loans

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