UI Outlook

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 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 President's Budget are detailed below. The total unemployment rate (TUR) is assumed to average 9.5% in FY 2011 and 8.8% in FY 2012. These rates are slightly higher than those assumed for the FY 2011 Budget Midsession Review.

Under these assumptions:

The insured unemployment rate (IUR) is projected to average 3.6% in both FY 2011 and in FY 2012.

State UI regular benefit outlays are estimated at $61 billion in FY 2011 and $64.3 billion in FY 2012, down somewhat from Midsession estimates.

Projected outlays for EUC and EB for 2011-12 increased by $86.5 billion due to extension of EUC08 and 100% federal EB funding through December 2011, which was partially offset by a drop in claims levels for those programs.

Outlays from state trust fund accounts are projected to exceed revenues and interest income by $16.0 billion in FY 2011 and $15.1 billion in FY 2012.

State trust fund account balances, net of loans, are projected to continue to fall, from -$27.4 billion at the end of FY 2010 to -$62.7 billion at the end of FY 2013, before starting to grow again. Net balances are not projected to become positive again until well beyond FY 2016.

Heavy borrowing from the Federal Unemployment Account (FUA) is projected to continue over the next few years. 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 $68.3 billion in FY 2013. Up to 40 states are projected to borrow.

Due to the high volume of state loans and increased EB payments, FUA and EUCA are projected to borrow $26.7 billion from the general fund in FY 2011 and an additional $19.4 billion in FY 2012. The general fund advances must be repaid with interest. Neither account is projected to return to a net positive balance by 2016.

Technical Note

The projections in this report are the official projections for the FY 2012 Budget. They were prepared in late November 2010. Since that time, both the TUR and IUR have declined somewhat, suggesting that these projections may be too pessimistic, at least in the near term. The projections will be updated for the FY 2012 Budget Midsession Review in July 2011.

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-4231
U.S. Department of Labor
200 Constitution Ave., NW
Washington, DC 20210