[Federal Register Volume 62, Number 11 (Thursday, January 16, 1997)]
[Proposed Rules]
[Pages 2544-2546]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-1102]



[[Page 2543]]

_______________________________________________________________________

Part IV





Department of Labor





_______________________________________________________________________



Employment and Training Administration



_______________________________________________________________________



20 CFR Parts 640 and 650



Federal-State Unemployment Compensation Program; Unemployment Insurance 
Performance System; Proposed Rule

  Federal Register / Vol. 62, No. 11 / Thursday, January 16, 1997 / 
Proposed Rules  

[[Page 2544]]



DEPARTMENT OF LABOR

Employment and Training Administration

20 CFR Parts 602, 640, and 650

RIN 1205-AB10


Federal-State Unemployment Compensation Program; Unemployment 
Insurance Performance System

AGENCY: Employment and Training Administration, Labor.

ACTION: Advance notice of proposed rulemaking; request for comments.

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

SUMMARY: The purpose of this notice is to obtain comments prior to 
proposing a streamlined regulation regarding a new, more unified system 
for improving Unemployment Insurance (UI) operational performance. The 
system, called UI Performs, responds to the call of the Vice 
President's National Performance Review for a more unified approach to 
improving UI performance. The broad goal of UI Performs is to improve 
continuously the quality of services to the UI system's ultimate 
customers (claimants and employers). It does this by giving both 
Federal and States partners a more unified performance management 
system, enabling them to manage more effectively and plan more 
innovatively.

DATES: The Department invites written comments on this notice. Comments 
are to be submitted by March 17, 1997.

ADDRESSES: Submit written comments to Mary Ann Wyrsch, Director; 
Unemployment Insurance Service, Employment and Training Administration 
(ETA); U.S. Department of Labor; 200 Constitution Avenue, N.W., Room S-
4231; Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT:
Burman Skrable, Unemployment Insurance Service, ETA; U.S. Department of 
Labor; 200 Constitution Avenue, N.W., Room S-4522; Washington, DC 
20210. Phone (202) 219-5922 (this is not a toll-free number); fax (202) 
219-8506.

SUPPLEMENTARY INFORMATION:

1. Background

    The legislative framework for the Federal-State UI program reserved 
many decisions to the States, such as specifying most criteria for 
eligibility and establishing most parameters of the tax structure. 
However, it gave the Secretary of Labor responsibility for ensuring 
compliance with minimum Federal guidelines and for assuring proper and 
efficient administration of the system. The Secretary's role in 
carrying out this responsibility has been interpreted to include the 
assurance of certain minimum levels of operational performance. Over 
time, the U.S. Department of Labor (DOL) increasingly exercised the 
Secretary's responsibilities for performance oversight by measuring and 
assessing program outputs instead of examining processes. It also 
spelled out some Federal performance requirements in regulations, as 
indicated below.
    Under the impetus of DOL, systems for measuring and improving 
various facets of UI performance were developed over the years and 
reflected the conditions of the time. Some highlights of this 
development include the following:
     Since the 1930s, States have been required to submit 
financial and activity reports to the Department;
     In the 1960s, States assessed various aspects of their 
performance using a self-appraisal system developed by DOL;
     In 1971, the Supreme Court issued its decision in 
California Human Resources Department v. Java concerning prompt benefit 
payments and appeals. This decision led DOL to issue regulations, at 20 
CFR Parts 640 and 650, specifying Secretary's Standards (SSs) that 
benefit payments and appeals decisions be made as quickly as 
``administratively feasible;''
     Later in the 1970s, the Performance Standards project 
developed the set of performance measures and numerical criteria now 
called the Quality Appraisal (QA) system. The QA system contains the 
measures of timeliness and numerical criteria considered to satisfy the 
SSs for first payment timeliness and lower-level appeals. It also 
contained other timeliness, quality and accuracy measures, including 
the Quality Performance Index (QPI) for rating the quality of 
nonmonetary determinations. Numerical criteria called Desired Levels of 
Achievement (DLAs) were set for some of these measures;
     Also in the 1970s, the QA system was tied to the budget 
process: as a condition for obtaining administrative grants, all States 
pledged to meet certain performance levels and to develop corrective 
action plans (CAPs) if they failed;
     In 1981, the workload data upon which administrative 
budgets were formulated and allocated began to be validated through the 
Workload Validation program;
     Also in 1981, benefit accuracy was first assessed by 
field-verifying sampled payments through the Random Audit (RA) program. 
Desiring to improve the accuracy of benefit payments from the levels RA 
showed, the Department expanded RA into Benefits Quality Control (BQC) 
and required its performance by regulation, at 20 CFR Part 602;
     In the late 1980s, DOL initiated Revenue Quality Control 
(RQC) to revise the QA tax measures and the Performance Measurement 
Review to improve the QA benefits timeliness and quality measures.
Thus, by the early 1990s, the performance system of the UI program was 
characterized by the following: there were two explicit SSs (for 
benefit payments timeliness, and for lower and higher authority appeals 
promptness) in regulation; numerical criteria called ``DLAs'' were set 
for other measures under the Secretary's authority for oversight of the 
system; systems for measuring benefit payment accuracy and tax 
operation (revenue) quality were established by regulation, but these 
contained no criteria indicating satisfactory performance; and other 
elements of a performance system, such as reporting and preparation of 
an annual performance and budget plan, were established under the 
Secretary's authority. A small fraction of reported data was validated.

2. Impetus for Change

    A 1993 National Performance Review (NPR) issue paper on BQC 
summarized a number of concerns about the way UI performance was 
measured and improved. It called on the Department to ``reexamine the 
present mix of systems for improving the performance of the 
unemployment insurance program and devise a unified strategy that 
improves its effectiveness'' (Paper DOL21, in NPR, Creating a 
Government that Works Better and Costs Less: Department of Labor, 
September 1993, at 88).
    Although the various UI performance measurement systems and 
programs functioned well in many regards, experience showed the need 
for improving them. The numeric criteria in regulations had two major 
deficiencies. First, they were indicative of what the Department 
considered to be administratively feasible at the time the regulations 
were issued. However, over the years some States have improved their 
performance to the extent that the criteria now appear to be set too 
low. As an example, during 1980, 34 States met the criterion of making 
87 percent of intrastate first payments within the 14/21-day timeliness 
standard, but only 4 States made as many as 93 percent of payments 
timely. By 1995, 50 States met

[[Page 2545]]

the 87 percent criterion, and 27 States paid at least 93 percent 
timely.
    Second, these fixed criteria could be interpreted to mean that 
performance above the criteria was neither needed nor expected, which 
does not encourage continuous improvement. Meanwhile, some States 
continued to perform at substandard levels. For example, in appraisal 
year 1995, 11 States failed to meet the criterion of disposing of 60 
percent of lower authority appeals within 30 days (down from 22 in 
1980). However, 15 States were able to dispose of more than 80 percent 
within 30 days.
    Other performance measures also had problems. A 1989 General 
Accounting Office (GAO) report notes that some of the QA performance 
indicators ``may be inappropriate and provide misleading indications of 
service quality, wherein an improvement in the measure could actually 
be indicating a decline in service quality.'' They cited as an example 
the field audit penetration rate. The report also concluded that the QA 
benefits measures ``overemphasize timeliness as opposed to other, more 
qualitative aspects of program performance.'' (GAO Report GAO/HRD-89-
72BR at 44.) At the same time, some areas are not measured at all. For 
example, the accuracy of paid claims is measured, but not of decisions 
to deny, (the samples of nonmonetary determinations rated for quality 
using the QPI include denials, but the scores are not reported 
separately). There was no single system linking performance 
measurements to corrective actions.

3. Development of a New Approach: the UI Performs System

    Responding to the NPR call to reexamine current performance 
improvement systems and develop a unified strategy to improve its 
effectiveness, in 1993, the DOL assembled the Performance Enhancement 
Workgroup (PEWG). This was a team of Federal UI Service managers and a 
corresponding team of senior State employment security personnel 
(designated by the Interstate Conference of Employment Security 
Agencies) asked to address jointly various concerns regarding the 
improvement of UI operational performance. The group met fifteen times 
in two years to develop the outlines of what it would call the UI 
Performs system. It set itself the broad goal of developing an approach 
by which the UI system could continuously improve services to the 
system's ultimate customers (claimants and employers) by encouraging 
both Federal and State partners to unify their approach to planning and 
operational improvement. The PEWG proposed embodying key elements of 
the UI Performs system in a short, streamlined regulation, reserving 
detail (e.g., definitions of measures and numerical benchmarks) to 
implementing issuances such as handbooks so that they could be changed 
more easily as needed. The system would rest on the following six main 
building blocks.

Block One: Partnership Principles

    The basic principles are maintaining mutual trust and respect, 
working as partners with complementary roles, setting high standards, 
and teamwork. The partners are expected to work closely together in 
developing measures, setting criteria, and planning for improved 
performance.

Block Two: Complementary Roles

    Federal law gives the Federal partner primary responsibility for 
leadership of the UI system as a whole, for providing adequate 
administrative resources, and for oversight of State operations to 
ensure that the requirements of Federal law are met. States are 
responsible for creating their own UI laws in conformity with the 
requirements of Federal law and conducting basic UI operations in 
accordance with their laws. This block recognizes the existence and 
wisdom of the complementary functions in the Federal-State UI 
partnership.

Block Three: Key Performance Objectives and Measures

    The workgroup conducted an extensive review of UI activities and 
identified a set of customer service objectives for which the DOL and 
the States should both be held accountable. They then decided how 
performance relative to those objectives would be measured. Most of the 
performance measures, which included those used for Secretary's 
standards, are already being implemented by States. The group then 
designated certain of these measures for the eventual setting of 
national performance criteria. National criteria are intended to 
reflect the same level of performance in all States, so the measures 
must have the same meaning in all States. They also had to represent 
basic performance objectives, and so all relate to Federal conformity 
and compliance requirements. The workgroup's list of key performance 
objectives, how they are to be measured, and which measures should have 
national performance criteria set for them is contained in UIPL 41-95 
(August 24, 1995), a copy of which can be obtained from the contact 
person listed in the summary. The PEWG also recommended that 
objectives, measures and criteria be reviewed periodically and adjusted 
if necessary.

Block Four: A continuous Improvement (CI) Cycle

    States will use the results of past performance to help set future 
directions and take actions through the planning process to improve 
performance continuously. Federal responsibilities include setting 
national priorities; working with each State in creating its plan and 
setting its planning targets; approving the plan; assisting with 
analysis of results; providing technical assistance to States needing 
or requesting it, based on their past or planned performance; and 
taking action to ensure States meet national performance criteria.
    To ensure CI, a new annual planning process would replace the 
Performance Budget Plan process. Called the State Quality Service Plan 
(or SQSP) it would be the primary vehicle through which the State, 
working closely with Federal staff, assesses its situation and sets 
priorities for improvement while maintaining performance in other 
areas. Federal UI performance objectives for the planning cycle would 
set the stage for this State-specific assessment and priority-setting 
process.
    The proposed cycle envisions a more active Federal role in 
shepherding and motivating performance improvement. This includes 
technical assistance, either provided directly or brokered from one 
State to another. The DOL will establish mechanisms for identifying and 
acknowledging superior performance. It will also work actively to 
identify deficient performers. Initially, it will try to get poor 
performers to improve their customer service through the SQSP process. 
If this routine mechanism proves insufficient, DOL would take steps 
which may lead all the way to conformity/compliance actions or other 
actions under Federal law.

Block Five: A Simplified Regulation

    The system envisions a relatively short, general regulation 
(outlined below). Details on key measures and national Federal 
performance criteria based on certain of the measures would be 
contained in implementing issuances such as handbooks so they can be 
updated as necessary. State staff would be involved in crafting all 
changes and all States would be given opportunity to comment. 
Implementing the measures and performing up to criteria levels would be 
explicit parts of the States' administrative grant agreements.

[[Page 2546]]

Block Six: Front-end Activities and Strategies

    To succeed, the UI Performs program requires the development of 
skills and other capacities at both Federal and State levels. Key 
capabilities include data and systems analyses and the computer 
capacity and program knowledge to support them. The DOL will both work 
to enhance its own capabilities in these areas and identify particular 
skills in various States which can be drawn upon when needed.
    The outlines of this new approach have been presented to the UI 
system and its stakeholders for comment in Unemployment Insurance 
Program Letter (UIPL) 41-95 (August 24, 1995), and its underlying basic 
principles in UIPL 46-94 (September 30, 1994). Copies are available 
from the contact person listed in the summary above. The DOL is now in 
the process of ``rolling it out'' by developing and implementing the 
various components. The main tasks are: Completing the development of 
new measurement initiatives, including an approach to validating 
required reports data; modifying the BQC program and reducing its 
resource requirements; developing, in consultation with States, 
measurements to fill performance measurement gaps, including denied 
claims accuracy; developing in consultation with States benchmarks or 
performance floors for certain key measures; developing the new annual 
planning process including mechanisms for the negotiation and approval 
of State-specific objectives; developing a process for the 
identification, development and brokering of performance improvement 
skills; development a system of rewards for recognizing exceptional 
performance; and developing a regulatory base for the UI Performs 
system. Full development of the system is expected to stretch into 
1999.

4. The UI Performs Regulation

    An integral part of the overall design of the UI Performs system is 
a new regulation. The Department envisions a streamlined regulation 
that would propose the following:
    a. Replace/incorporate key features of 20 CFR 602, 640, and 650, in 
a more cohesive and, if possible, shorter form;
    b. Set forth the goals (e.g., continuous improvement, service to 
ultimate customers) and requirements (e.g., greatest performance that 
is administratively feasible, performance of certain activities 
necessary for proper and efficient administration) of the unified 
strategy embodied in the UI Performs system;
    c. Set forth what the UI Performs system requires States to do, 
including:
     Prepare an Annual Performance Plan (the SQSP) as the basis 
for receiving administrative grants;
     Conduct certain performance measurement activities, 
identified or developed through a consultative process, and report data 
to DOL;
     Validate certain key measures;
     Operate the UI program (pay benefits, collect taxes) with 
the highest quality (accuracy, timeliness, completeness, adherence to 
procedure) that is administratively feasible; and
     Take effective action to ensure performance standards are 
met;
    d. Establish Federal performance criteria, developed through a 
consultative process, for certain measures;
    e. Provide that, in determining whether to recommend to the 
Secretary the commencement of proceedings to determine whether tax 
credits and/or administrative grants (as appropriate) should be 
withheld on account of sustained deficient performance, the Department 
will evaluate all the facts relating to a State's performance in the 
deficient area; and
    f. Require Periodic Review of Measures and Criteria to ascertain 
whether the measures are useful and the criteria are appropriate and 
adjust either as needed.

Comments Solicited

    Reviewers are encouraged to comment on all items in the proposed 
regulatory design and to pay particular attention to the specific 
questions below.
    1. This regulation would propose, as Federal requirements, the 
basic core of performance system. The core components would be: (a) 
Certain performance measurements or measurement systems; (b) validation 
of certain reported data elements; (c) a performance plan on an annual 
cycle; and (d) the premise that performance must be of the greatest 
quality administratively feasible, implemented in practice by a 
mutually agreed-upon system of nationwide performance criteria for 
States to meet. Does this characterization include all appropriate core 
requirements for the UI Performs system?
    2. UIPL 41-95 solicited comments from States and stakeholder groups 
on proposed UI Performs measures and measures for which national 
performance criteria would be set. State staff will participate in 
setting actual performance criteria and the system will be asked to 
comment on them. The Department offers this Notice as an additional 
opportunity to comment on what aspects of the UI program should be 
measured, how these aspects should be measured and what constitutes 
acceptable performance.
    3. Once measures and performance criteria have been agreed upon, 
the means ensuring adequate performance must be addressed. At present, 
the Secretary may withhold administrative grants or the Federal 
Unemployment Tax Act offset credit after notice and an opportunity for 
a hearing have been provided to the States.
    (a) What actions, short of the total termination of tax credits or 
grants, are appropriate to bring about compliance with performance 
requirements?
    (b) Should there be available to the Secretary less drastic 
remedies such as a more graduated series of sanctions for sustained 
poor performance, and if so, what specific sanctions?
    (c) How should ``sustained poor performance'' be defined?
    4. Should the Secretary provide rewards for good performance? If 
so, what specific rewards and under what conditions?
    5. Should the regulation provide for the waiver of measurement 
requirements that are not necessary for the proper and efficient 
administration of a State's UI program? If so, under what conditions 
should such waivers be granted?

List of Subjects

20 CFR Part 602

    Grant programs, Labor.

20 CFR Parts 640 and 650

    Unemployment compensation.

    Dated: January 10, 1997.
Timothy M. Barnicle,
Assistant Secretary of Labor.
[FR Doc. 97-1102 Filed 1-15-97; 8:45 am]
BILLING CODE 4510-30-M