UI Outlook FY 2012 Budget Midsession Review

OVERVIEW

Twice each year, when the Office of Management and Budget issues economic assumptions for the federal budget, the Division of Fiscal and Actuarial Services (DFAS) of the Office of Unemployment Insurance (OUI) uses those assumptions to develop financial projections for the Unemployment Insurance (UI) system.

Using the economic assumptions, the paths of key program variables are projected for the following five years. It should be noted that the economic assumptions beyond the first two years are not intended to be forecasts but rather are based on long-term trends. Deviations from the assumed economic path could have a significant effect on the accuracy of the estimates shown here.

Highlights of the analysis for the FY 2012 Budget Midsession Review are detailed below. The total unemployment rate (TUR) is assumed to average 9.1% in FY 2011 and 8.4% in FY 2012. These rates are somewhat lower than those assumed for the FY 2012 President's Budget.

Under these assumptions:

The insured unemployment rate (IUR) is projected to average 3.1% in FY 2011 and 3.0% in FY 2012, down significantly from President's Budget estimates. This reduction affected many of the estimates in this document.

State UI regular benefit outlays are estimated at $51.4 billion in FY 2011 and $51.7 billion in FY 2012, also down significantly.

Projected outlays for Emergency Unemployment Compensation (EUC) and Federal-State Extended Benefits (EB) for 2011-12 dropped by $5 billion due to lower unemployment projections and fewer states meeting trigger threshold for tiers 3 and 4 of EUC and for EB.

Outlays from state trust fund accounts are projected to exceed revenues and interest income by $3.6 billion in both FY 2011 and FY 2012. Income is projected to exceed outlays starting in 2014.

State trust fund account balances, net of loans, are projected to continue to fall somewhat, from -$27.4 billion at the end of FY 2010 to -$31.9 billion at the end of FY 2012, before starting to grow again. Net balances are projected to become positive again in FY 2016.

State borrowing projections are down considerably from President's Budget. The aggregate loan balance is projected to increase from $40.2 billion at the end of FY 2010 to a peak end-of-year balance of $43.6 billion in FY 2012.
Due to the high levels of state loans and EB payments, the Federal Unemployment Account (FUA) and the Extended Unemployment Compensation Account (EUCA) are projected to borrow $20.1 billion from the general fund in FY 2011 and an additional $9.3 billion in FY 2012, although FUA has also made repayments. The general fund advances must be repaid with interest.

Proposed Legislation

The tables in this publication are based on current law, under which the effective FUTA tax rate drops from 0.8% to 0.6% in July 2011. The FY 2012 President's Budget includes a proposal which would extend the 0.8% rate through 2013, then reduce it to 0.38% in 2014. The FUTA taxable wage base would be increased to $15,000 in 2014, then indexed to wage growth. The proposal would also provide near-term tax relief by extending the moratorium on state loan interest for two years and by delaying the application of FUTA credit reductions for borrowing states for two years. These changes would first reduce, then increase state loan repayments and repayment of FUA general fund advances as well as increasing repayments of EUCA general fund advances.

Questions and/or comments regarding this document are welcomed. Please contact Mike Miller at miller.michael@dol.gov or (202) 693-2930 or Kevin Stapleton at stapleton.kevin@dol.gov or (202) 693-3009 or write to:

Office of Unemployment Insurance
Division of Fiscal and Actuarial Services
Room S-4524
U.S. Department of Labor
200 Constitution Ave., NW
Washington, DC 20210