[Federal Register Volume 62, Number 232 (Wednesday, December 3, 1997)]
[Notices]
[Pages 63960-63967]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31669]


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DEPARTMENT OF LABOR

Employment and Training Administration


Federal-State Unemployment Compensation Program: Unemployment 
Insurance Program Letters Interpreting Federal Unemployment Insurance 
Law

    The Employment and Training Administration interprets Federal law 
requirements pertaining to unemployment compensation (UC) as part of 
its role in the administration of the Federal-State UC program. These 
interpretations are issued in Unemployment Insurance Program Letters 
(UIPLs) to the State Employment Security Agencies. The UIPL described 
below is published in the Federal Register in order to inform the 
public.

UIPL 39-97

    UIPL 39-97, dated September 12, 1997, advises States of the 
Department of Labor's interpretation of the Reed Act provisions of 
Title IX of the Social Security Act and transmits updated instructions 
and requirements related to the use of ``Reed Act'' funds as 
transferred to State accounts in the Unemployment Trust Fund.

    Dated: November 26, 1997.
Raymond J. Uhalde,
Acting Assistant Secretary of Labor.

Classification: UI
Correspondence Symbol: TEUFA
Date: September 12, 1997.
Directive: Unemployment Insurance Program Letter No. 39-97
To: All State Employment Security Agencies
From: Grace A. Kilbane, Director, Unemployment Insurance Service
Subject: The Reed Act Provisions of Title IX of the Social Security Act

    1. Purpose. To transmit updated instructions and requirements 
related to the use of ``Reed Act'' funds as transferred to State 
accounts in the Unemployment Trust Fund (UTF).
    2. References. Sections 303(a)(2), 303(a)(4), 303(a)(5), 303(a)(8), 
901(c), 903, 904 and 1201 of the Social Security Act (SSA); the 
Balanced Budget Act of 1997 (BBA), P.L. 105-33; Sections 3304(a)(3), 
3304(a)(4) and 3306(f) of the Federal Unemployment Tax Act (FUTA); 29 
CFR Part 97; OMB Circular No. A-87; Part IV, Sections 3000-3040 of the 
Employment Security Manual (ES Manual); UIPL Nos. 5-90, 11-90 and 12-
91; GAL Nos. 4-83, 5-94 and 2-96; and Section III, Chapter 2 of ET 
Handbook No. 401.
    3. Background. The Unemployment Insurance Service (UIS) is issuing 
``basic'' program letters for certain program areas to provide 
comprehensive instructions to States in a single document. This program 
letter provides guidance to States in accounting for their use of Reed 
Act funds in accordance with standards established by the Secretary of 
Labor. This directive is a consolidation of instructions from the ES 
Manual and previous UI program and administration letters related to 
Reed Act funds and now supersedes the ES Manual sections referenced 
above. These instructions may later be included as a part of a Handbook 
issuance.
    4. Action Required. SESA administrators are requested to provide 
these instructions to the appropriate staff.
    5. Inquires. Inquires should be directed to your Regional Office.
    6. Rescission. Part IV, Sections 3000-3040 of the Employment 
Security Manual.
    7. Attachments.
    I. The Reed Act Provisions of Title IX of the Social Security Act;
    II. Draft Language for State Laws.

Attachment I--The Reed Act Provisions of Title IX of the Social 
Security Act

A. Introduction

    1. Definition--Background. The term ``Reed Act'' refers to a part 
of the Employment Security Financing Act of 1954, and is used in honor 
of Congressman Daniel A. Reed of New York, chairman of the House Ways 
and Means Committee at the time. This legislation amended Titles IX and 
XII of the Social Security Act (SSA) and established the basic 
structure of the Unemployment Trust Fund (UTF). The amendments to Title 
IX, among other things, provided, under certain conditions, for the 
transfer of excess funds in the Employment Security Administration 
Account (ESAA) in the UTF to the individual State accounts in the UTF 
(Section 903(a)(1), SSA). These transferred funds are commonly referred 
to as ``Reed Act'' funds. To date, only three Reed Act distributions--
in 1956, 1957, and 1958--totalling $138 million, have been made to 
State accounts.
    Under the SSA, the primary purpose of Reed Act funds is the payment 
of ``cash benefits to individuals with respect to their unemployment, 
exclusive of expenses of administration'' (Section 903(c)(1), SSA). 
However, subject to conditions specified in Section 903(c)(2), SSA, a 
State is permitted, at its discretion, to use Reed Act funds for ``the 
administration of its unemployment compensation law and public 
employment offices''. (See Part E. for exception for use of Reed Act 
amounts allocated for fiscal years 2000, 2001, and 2002.)
    Title III, SSA, governs the use of Federal grant funds for the 
administration of the unemployment compensation (UC) programs by 
States. Section 302(a), SSA, addresses the uses of UC granted funds as 
follows:
    The Secretary of Labor shall from time to time certify to the 
Secretary of the Treasury for payment to each State which has an 
unemployment compensation law approved by the Secretary of Labor under 
the Federal Unemployment Tax Act, such amounts as the Secretary of 
Labor determines to

[[Page 63961]]

be necessary for the proper and efficient administration of such law 
during the fiscal year for which such payment is to be made.
    Section 303(a)(8), SSA, requires, as a condition of receiving UC 
administrative grants, that State laws include provision for: the 
expenditure of all moneys received pursuant to section 302 of this 
title solely for the purposes and in the amounts found necessary by the 
Secretary of Labor for the proper and efficient administration of such 
State law.
    Section 901(c)(1), SSA, authorizes to be made available for 
expenditure out of the employment security administration account, for 
each fiscal year--
    (A) such amounts * * * as the Congress may deem appropriate for the 
purpose of--
    (i) assisting the States in the administration of their 
unemployment compensation laws as provided in title III (including 
administration pursuant to agreements under any Federal unemployment 
compensation law).
    (ii) the establishment and maintenance of systems of public 
employment offices in accordance with the Act of June 6, 1933, as 
amended (29 U.S.C., secs. 49-49n).
    State employment security agencies (SESAs) include both UC and 
public employment (ES) offices and, to the extent that they operate 
State activities provided for only under title III, SSA, and the 
Wagner-Peyser Act, will hereafter be called the ``employment security 
program''. Reed Act funds may be used to pay the administrative 
expenses of the employment security program. (See Part E. for exception 
for use of Reed Act amounts allocated for fiscal years 2000, 2001, and 
2002.)
    Initially, Reed Act funds were available for administrative 
expenses up to 5 years from the date they were first credited to a 
State's account. Through amendments, the time period for administrative 
use was later extended to 10, 15, 25, and 35 years, and then eliminated 
effective October 1, 1991.
    2. Relationship to Trust Fund Operations. Reed Act funds become a 
part of a State's unemployment fund, as defined in Section 3306(f) of 
the Federal Unemployment Tax Act (FUTA), on the date they are 
transferred to the State's account in the UTF. Such funds retain legal 
status as a part of the State's unemployment fund and must be accounted 
for as part of the fund until expended for unemployment compensation or 
administrative expenses of the State's employment security program. As 
such, Reed Act funds are subject to the ``immediate deposit'' and 
``limited withdrawal'' standards (Sections 303(a)(4) and (5), SSA; 
Sections 3304(a)(3) and (4), FUTA) applicable to all State unemployment 
fund money.

B. Mechanics of a Reed Act Distribution

    1. Conditions Necessary for Making Transfers. Whenever the 
Secretary of Labor has reason to believe that conditions which are 
necessary for a Reed Act transfer will occur in the next fiscal year, 
the Secretary, after consultation with the Secretary of the Treasury, 
shall report to Congress with a recommendation for appropriate action 
(Section 902(c), SSA). Section 903(a)(1) provides that a transfer of 
Reed Act funds will occur if the following conditions exist in the 
Federal accounts of the UTF at the end of a Federal fiscal year (that 
is, September 30):
    a. The balance of funds in the extended unemployment compensation 
account (EUCA) and the Federal unemployment account (FUA) have reached 
their statutory ceilings, and all general revenue advances and related 
interest to these accounts have been repaid, and
    b. There remains in the employment security administration account 
(ESAA) an amount in excess of the account's statutory ceiling.
    The excess amount in the ESAA is then transferred to State accounts 
in the UTF at the beginning of the following Federal fiscal year, as 
explained below.
    2. Amounts Transferred to State Accounts. Each State's share of the 
amount to be transferred is based on the proportion of wages subject to 
FUTA attributable to the State during the preceding calendar year to 
the aggregate amount of wages subject to FUTA during the same year for 
all States. The exact share for each State is derived by applying its 
computed ratio or percentage to the total amount to be transferred. 
(See Part B.3. for exception for calculating State shares with respect 
to amounts for Federal fiscal years ending in 1999, 2000, and 2001.) 
The Secretary of Labor determines the amount of each State's share and 
certifies it to the Secretary of the Treasury. (Section 903(a)(2), 
SSA.)
    3. Special Distribution with Respect to Federal Fiscal Years 1999, 
2000, and 2001. The Balanced Budget Act of 1997 (BBA) amended Section 
903 of the SSA to cap the total amount of Reed Act transfers made with 
respect to Federal Fiscal years ending in 1999, 2000, and 2001 at 
$100,000,000 per year. Each State's share of the amount to be 
transferred will be based on the ratio of the amount of ``funds to be 
allocated to such State for such fiscal year pursuant to the base 
allocation formula under title III'', SSA, to ``the total amount of 
funds to be allocated to all States for such fiscal year pursuant to 
the base allocation formula under Title III.'' (Section 903(a)(3), 
SSA.)
    4. Limitations on Transfers.
    All States share in a Reed Act transfer. However, under Section 
903(b), SSA, the total amount of a State's share may not be credited to 
its UTF account in the following two instances:
    a. The Secretary of Labor finds that on October 1 of the year in 
question, a State is not eligible for certification under Section 303, 
SSA, or the law of the State is not approvable under Section 3304, 
FUTA.
    In this instance, the State's share of Reed Act funds is credited 
to the FUA and held in reserve. If the Secretary of Labor certifies 
that the State is eligible for certification under Section 303, SSA, 
and/or that its law is approvable under Section 3304, FUTA, before the 
end of the fiscal year, the State's Reed Act share is then transferred 
to its account. However, such delayed credits, although designated for 
the State, earn interest for the State only from the date credited, 
because they are not a part of the State's individual account until 
credited. If certification and/or approval is not received before the 
end of the fiscal year, the amount that would have been transferred to 
the State's account remains in the FUA and becomes unrestricted as to 
its use as a part of that account.
    b. On October 1, a State has an outstanding balance of advances 
under Title XII, SSA. (See Part C.2.)
    The State's Reed Act share is reduced (but not below zero) by the 
balance of unpaid Title XII advances. The amount of the reduction is 
transferred to or retained in the FUA and serves to reduce the State's 
balance of outstanding advances. If the State's Reed Act share has not 
been reduced to zero, the remaining amount is credited to its UTF 
account.

C. Use of Reed Act Funds for UC Benefit Payments

    1. Use under Normal Circumstances. Section 903(c)(1), SSA, imposes 
no requirements on a State's use of Reed Act funds for benefit 
payments. For this purpose, funds are withdrawn from the State's UTF 
account as are any other funds in the account. Logically, a State would 
first expend other available funds for benefits in order to preserve 
its Reed Act balance, which can be used for either benefits or, under 
specified conditions, administrative expenses. Therefore, the 
Department of Labor (DOL) assumes that as long as the balance of funds 
in a State's UTF

[[Page 63962]]

account exceeds its unexpended balance of Reed Act allocations, the 
total unused Reed Act balance remains within the account. (See Part E. 
for exceptions for use of amounts allocated for fiscal years 2000, 
2001, and 2002.)
    2. Use upon Obtaining a Title XII Advance. Section 1201, SSA, 
provides a system of ``Title XII'' advances to States with temporarily 
depleted unemployment compensation reserves. One of the requirements 
for a State to qualify for an advance is that the amount of the advance 
be determined by considering all other amounts available in the State's 
unemployment fund for benefit payment. (Section 1201(a)(3)(B), SSA.) 
This includes, as explained below, unobligated Reed Act funds. 
Therefore, upon obtaining a Title XII advance, a State's unexpended 
Reed Act funds become subject to expenditure for benefits without 
regard to whether they have been appropriated or, except as provided 
below, obligated for an administrative expense. (See Part E. for 
exceptions for use of amounts transferred with respect to Federal 
fiscal years 1999, 2000, and 2001.)
    3. Procedures to Set Aside Obligated Amounts Amounts validly 
obligated, under appropriations made consistently with the Reed Act, 
are considered to be unavailable for any other purpose, including the 
payment of benefits upon obtaining a Title XII advance. To assure 
availability for expenditure when obligations mature, Reed Act funds, 
which are properly obligated for an administrative expense prior to 
obtaining an advance, may be made unavailable for benefit payment if 
the State elects to set aside such amounts in a UTF Reed Act ``sub-
account''. This set aside provision does not apply to appropriated 
funds prior to actual obligation, because an appropriation specifies 
only the purpose for which funds may be expended and does not create 
transactions which require a payment of money. Funds residing in a Reed 
Act sub-account are not considered available for benefits and are not 
taken into account by DOL or Treasury for Title XII purposes, if 
properly set aside in such a sub-account. The procedures to set aside 
obligated amounts are as follows:
    a. To establish an initial credit to a sub-account a State must:
    1. Review each current Reed Act obligation under which there is an 
unexpended balance and validate the:

--Date of enactment of the enabling appropriation (see part D.1.),
--Date and amount of each obligation (see part D.2.), and
--Unexpended balance of each obligation amount;

    2. Prepare a letter certifying the amount of unexpended Reed Act 
obligations as of the end of the month being used to establish the 
initial credit. This amount must agree with transactions reported on 
Form ETA 8403, Summary of Financial Transactions--Title IX Funds 
(``Reed Act'' Money) submitted for the same month. (The total of column 
III(b) less the total of column IV(a) must equal the amount of 
unexpended obligations.) As documentation, attach a summary sheet 
identifying each appropriation under which there is an unexpended 
obligation amount. For each appropriation, indicate the purpose, dollar 
amount, enactment date, legislative bill number, and the current total 
dollar amount obligated.
    The letter and attachment should be addressed to: U.S. Department 
of Labor, Employment and Training Administration, Attention: TEUFA, 200 
Constitution Avenue, N.W., Rm C-4512, Washington, D.C. 20210.
    DOL will then certify the same to U.S. Treasury, subject to review 
of the State's documentation.
    b. To provide for on-going maintenance of the sub-account, a State 
must:
    1. Certify to DOL by letter on a monthly basis all new obligation 
amounts and all deobligated amounts. The letter must specify the 
effective date of each obligation or deobligation and identify the 
corresponding appropriation(s) and/or related obligation(s) by amount 
and effective date. The letter must be received by the tenth business 
day of the month following the month in which the transaction occurred 
and be accompanied by a Form ETA 8403 for the appropriate month:
    2. When requisitioning funds from the State's UTF account, 
specifically identify withdrawal amounts requested from the Reed Act 
sub-account;
    3. Include all Reed Act sub-account transactions on Form ETA 8403 
for the month in which the transaction(s) occur; and
    4. Include all Reed Act redeposits and withdrawals on each month's 
written confirmation letter to Treasury of UTF account activities.
    As new obligations are made or as obligations are cancelled, the 
amounts obligated or deobligated will be certified in a similar manner 
and credited or deducted from the State's Reed Act sub-account. 
Withdrawals to pay Reed Act obligations, as specified by State 
requisitions, will be charged against the Reed Act sub-account.
    4. Restoration of Funds Used for Benefits. Each expenditure of Reed 
Act funds, whether for benefits or administrative costs, reduces the 
amount available for appropriation in accordance with Section 
903(c)(2), SSA. Under certain conditions described in Section 
903(c)(3), SSA, funds used to pay benefits may be restored to 
availability for administrative purposes:
     The Governor of a State must submit a request for 
restoration of such funds to the Secretary of Labor,
     Funds to be restored must have been used for benefits,
     The amount to be restored does not exceed the balance in 
the State's UTF account, and
     The State's unemployment fund must be free of outstanding 
Title XII advances when the request is made.
    a. Determining amount to be restored. States which used Title XII 
advances must determine the amount of Reed Act funds used for benefits. 
A ``pre-approved'' amount of a Title XII advance is designated for a 
State for a specific month. However, other than the amount set aside in 
a Reed Act sub-account, U.S. Treasury procedures take into account a 
State's entire UTF account balance (including Reed Act funds which have 
not been set aside in a Reed Act sub-account), which must be reduced to 
zero prior to calculating the actual amount of an advance and 
transferring it to the State.
     The balance of Reed Act funds (not set aside in a Reed Act 
sub-account) in the State's account on the date in the first month any 
portion of a Title XII advance was actually used is the amount of Reed 
Act funds used for benefits and eligible for restoration.
     If, after an initial advance and the resulting expenditure 
of Reed Act funds for benefits, funds are recovered through 
amortization (see Part F. ) and deposited in a State unemployment fund 
in any subsequent month as Reed Act redeposits, then such redeposited 
amounts are also considered to have been used for benefits if the State 
uses any portion of a Title XII advance during that month. However, if 
the State does not use any portion of a subsequent advance in a month 
in which a redeposit is made, the redeposited amount remains in the 
State's account as Reed Act funds but must be used only to pay benefits 
while there is an outstanding balance of advances.

    Example: On February 1, 1997, a State has a $500,000 balance of 
Reed Act money in its account in the UTF, none of which has been set 
aside in a Reed Act sub-account. A Title XII advance in the amount 
of $5,000,000 has been approved for use by the State during 
February. On February 9, the balance in the State's account is 
$700,000 and the State

[[Page 63963]]

requests a withdrawal of $2,000,000. To transfer the State's 
requisition of $2,000,000, the U.S. Treasury first deducts the 
remaining $700,000 from the State's account (which includes the 
$500,000 Reed Act balance), thereby reducing the State's account 
balance to zero; it then adds to the account $1,300,000 from the 
$5,000,000 Title XII advance for February, which it transfers to the 
State along with the original $700,000. At this time, the $500,000 
in Reed Act money is deemed to have been used for benefits. During 
March and April, the State redeposits $100,000 to its UTF account 
received as amortization payments on a Reed Act financed building. 
This money is available for obligation for administrative expenses 
after the State repays all advances, because under Section 
903(c)(2), SSA, Reed Act funds may not be obligated while there is a 
outstanding balance of Title XII advances. If the State does not 
borrow again and repays all outstanding Title XII advances, the 
Governor may request restoration of the $500,000 used for benefits 
in February 1997. If the State borrows again in April, the $100,000 
would also be used for benefits. Therefore, after all advances are 
repaid, the Governor may request restoration of the $500,000 used 
for benefits in February 1997 and the $100,000 used for benefits in 
April 1997.

    b. Procedures for restoration of funds.
    States desiring restoration of Reed Act funds must prepare and 
submit:
     Form ETA 8403, indicating when funds were used for 
benefits by showing dates (month, year) in column I and the appropriate 
amounts as negative figures in column II of the report; and
     A letter from the Governor of the State to the Secretary 
of Labor (1) stating that the State's unemployment fund is free of 
Title XII obligations and contains funds at least equal to the amount 
to be restored, and (2) specifying amounts to be restored pursuant to 
Section 903(c)(3), SSA.
    If the Secretary of Labor determines that:
     Amounts requested for restoration: (1) were used to pay 
benefits and (2) do not exceed the amount in the State's UTF account, 
and
     All Title XII advances were repaid as of the request date;

then the Secretary will notify the Governor that the restoration is 
approved. Restoration shall be effective on the first day of the month 
following the date of the Secretary's notice.

D. Use of Reed act funds for Administrative Purposes

    1. Legal Requirements. Reed Act funds may be used for 
administrative expenses of the employment security program only if a 
State adheres to the requirements specified in Section 903(c)(2), SSA. 
(See Part E. for exception for use of amounts allocated for fiscal 
years 2000, 2001, and 2002.)
    The State legislative body must authorize the use of Reed Act money 
by specific appropriation. The appropriation law: (1) Must specify the 
purpose and the amount of the appropriation, (2) may not authorize 
obligation of funds after the close of the two-year period which began 
on the date of enactment of the law, and (3) must limit the amounts 
which may be obligated to the balance of unobligated Reed Act funds in 
the State's unemployment fund. Funds must be withdrawn from the State's 
unemployment fund and expended after the date of enactment and must be 
accounted for in accordance with standards established by the Secretary 
of Labor. (See Attachment II, Draft Language for State Laws in 
appropriating Reed Act funds for administrative purposes.)
    2. Guidelines for Use.
    a. Specificity and Limitation Requirements of an Appropriation Act. 
A State appropriation act authorizing the use of Reed Act funds must 
(1) limit the use of funds appropriated exclusively to administrative 
expenses of the employment security program and (2) specify the purpose 
for which the funds are appropriated and the amount appropriated for 
each purpose. For example, the purpose of an appropriation law might 
be: ``To conduct a special, statewide, intensive audit of employer 
payrolls in the construction industry''.
    When a State agency is administering other programs in addition to 
the employment security program (e.g., a disability insurance program), 
no part of the expenses of administering the other programs may be paid 
with Reed Act funds. When funds are appropriated for a purpose for 
which only a part is related to employment security, the appropriation 
law must specify the employment security share and the amount of Reed 
Act funds to be used.
    Although an appropriation of Reed Act funds may exceed the balance 
of available Reed Act funds at the time of the appropriation (see part 
D.2.c.), the appropriation law must specify that the amount which may 
be obligated at any time may not exceed the balance of Reed Act funds 
available at the time of obligation in the State's unemployment fund.
    b. Two-Year Limit for Obligating Funds. The two-year time limit 
imposed by Section 903(c)(2)(B), SSA, within which Reed Act funds 
appropriated by State law must be obligated begins on the date of 
enactment of the appropriation law, not the date as of which funds were 
transferred to the State's UTF account. The appropriation law must be 
worded so that it is clear that funds appropriated are not available 
for obligation after the two-year period. The term, ``date of 
enactment'', as used in Section 903(c) (2), SSA, means the date on 
which an act passed by the State legislature becomes law. The 
determination of the date when such an act becomes law is a question 
for the appropriate State authority. In some instances, State courts 
have held that the effective date of an act is the date of enactment. 
However, the substitution of ``effective date'' for the term ``date of 
enactment'' in Reed Act legislation should be avoided, since an 
interpretation of State law will be required to determine whether the 
appropriation law meets the requirements of Section 903(c)(2)(B), SSA, 
if ``effective date'' is used. The general rule is that the date of 
enactment is the date on which the act is approved by the Governor of 
the State. Money is ``obligated'' and an ``obligation'' is created when 
an order is placed, a contract is awarded, or other transactions are 
entered into which require a current or future payment of money. The 
use of the term ``obligate'' instead of ``expenditure'' in Reed Act 
appropriations is recommended for consistency with Section 
903(c)(2)(B). The use of such terminology also allows greater 
flexibility in handling Reed Act funds; money obligated before the 
expiration of the two-year limit may be expended any time afterward.
    c. Appropriation in Anticipation of Future Reed Act Availability. A 
State legislature is not prohibited from appropriating Reed Act funds 
in anticipation of a future availability of Reed Act funds. However, 
such funds may not be obligated prior to becoming available even though 
they have been properly appropriated by act, the enactment date of 
which precedes the date of funds becoming available.
    d. ETA Administrative Requirements Not Applicable. Although Reed 
Act funds may be used for an administrative expense of the employment 
security program, Section 903(c)(2), SSA, does not, as do Sections 
303(a) and 303(a)(8), SSA, require that the expenditure be for a 
purpose or in an amount found necessary for proper and efficient 
administration by the Secretary of Labor. Further, since Reed Act funds 
are not granted funds, the administrative requirements related to the 
use of grant funds at 29 Code of Federal Regulations (CFR) Part 97 and 
OMB Circular No. A-87 (60 Federal Register 26484 (May 17, 1995)) with 
respect to the expenditure of Wagner-Peyser Act and Title III funds 
(granted funds) are not applicable to the expenditure of Reed Act 
funds.

[[Page 63964]]

Nevertheless, Reed Act funds must be expended consistent with Sections 
903(c) (1) and (2), SSA. Further, where Wagner-Peyser and granted funds 
are to be used to reimburse Reed Act expenditures for certain 
permissible purposes, DOL prior approval may be required for such use 
of granted funds. (See part F.)
    e. Restrictions on Withdrawal of Funds. Reed Act funds may not be 
withdrawn from a State's unemployment fund for administrative expenses, 
and expenses may not be incurred until after the enactment date of the 
appropriation law. In addition, funds may not be withdrawn prior to 
obligation. The withdrawal of Reed Act funds must adhere to the U.S. 
Treasury-State Agreement under the Cash Management Improvement Act of 
1990 (CMIA).
    Funds may be withdrawn only in amounts necessary to pay mature 
obligations. (Section 303(a)(5), SSA; Section 3304(a)(4), FUTA.) An 
obligation is mature when payment is due either by reimbursement of 
expenses or contractual agreement for advance payments. Reed Act funds 
withdrawn may be mingled with other administrative funds (granted 
funds) if separate book accounts are maintained by the State agency to 
identify the balance of Reed Act funds at all times.
    3. Use of Reed Act Interest Credits. Since Section 903(c)(2)(D), 
SSA, limits the amount which may be obligated for administration to 
amounts transferred to the State's account, interest credits 
attributable to the amount of Reed Act funds in the State's UTF account 
may not be appropriated, obligated, expended, or disbursed for 
administrative purposes.
    4. Investment of Reed Act Funds Not Permissible. Except as provided 
under the CMIA, investment is not one of the purposes for which money 
withdrawn from a State unemployment fund may be used. Since Reed Act 
funds are a part of the State's unemployment fund, a State law which 
permits investment of such funds is inconsistent with Section 
303(a)(5), SSA, and Section 3304(a)(4) of FUTA. It was the intent of 
Congress, as indicated by Section 904, SSA, that money in the UTF may 
be invested only by the Secretary of Treasury. This intent is 
effectuated only by assuring that Reed Act moneys remain in the UTF.

E. Use of Reed Act Funds Allocated for Fiscal Years 2000, 2001, and 
2002

    The BBA of 1997 amended paragraph (2) of Section 903(c) of the SSA, 
by adding the following sentence: ``Any amount allocated to a State 
under this section for fiscal year 2000, 2001, or 2002 may be used by 
such State only to pay expenses incurred by it for the administration 
of its unemployment compensation law, and may be so used by it without 
regard to any of the conditions prescribed in any of the preceding 
provisions of this paragraph.''
    Unlike previous Reed Act transfers, States are prohibited from 
using Reed Act funds allocated for these three years for the payment of 
UC benefits or the administration of State public employment offices. 
However, States may, among other uses, use these Reed Act funds for 
purchasing real property for UC purposes and may amortize these 
purchases against UC grant funds. (See Parts G. and H.) Additionally, 
the restrictions applicable to Reed Act funds in section 903(c)(2), 
SSA, are not applicable to amounts allocated for fiscal years 2000, 
2001, and 2002. This means that the amounts transferred to States for 
these three years may be used without obtaining an appropriation from 
the State's legislative body, as discussed in Parts D.1. and D.2., 
above. States must amend their UC laws to prohibit the use of Reed Act 
funds allocated for fiscal years 2000, 2001, and 2002 for the payment 
of UC benefits and may further amend their UC laws to authorize the use 
of such funds for UC administrative purposes without a specific 
appropriation from their State legislatures. (See Attachment II, Draft 
Language for State Laws.)

F. Use of Reed Act Funds for Voter Registration Activities

    Under the National Voter Registration Act (NVRA) of 1993, States 
are permitted to designate State UC and ES offices as voter 
registration agencies. Reed Act funds may be used to pay for the 
administration of a State's UC law and public employment office. Since, 
under the SSA, voter registration activities are not necessary for the 
administration of the State's UC law, Reed Act funds may not be used 
for those activities. However, since Section 7(a)(3)(B) of the Wagner-
Peyser Act authorizes SESAs to use ES grant monies for ``developing 
linkages between services funded under this Act and related Federal or 
State legislation'', if an ES office is designated as a voter 
registration agency under the NVRA, then voter registration activities 
of that ES office are legitimate ES administrative expenses chargeable 
to ES grants. Therefore, Reed Act funds may be used to pay for these 
voter registration activities.

    Note: As illustrated in F., the use of Reed Act funds for SESA 
administrative expenses is permissible for purposes other than those 
specifically mentioned in this discussion.

G. Use of Reed Act Funds to Acquire Real Property

    1. Acquisition of Real Property Deemed an Expense of 
Administration. Reed Act funds may be used to acquire land and to 
purchase or construct a building for use and occupancy by the State 
employment security agency consistent with Section 903(c)(2), SSA. This 
is an expense of employment security administration. The following are 
special conditions applicable to this use of Reed Act funds:
    a. Space. Since Reed Act funds may be used only for employment 
security purposes, such funds may be used to pay only for that part of 
the land and building space costs which are directly related to 
employment security purposes, e.g., that part of the cost of a building 
as is represented by the proportion of the total space occupied and 
used by the employment security agency for employment security 
purposes, including the cost of agency functions and other agency 
programs and activities which jointly benefit Wagner-Peyser Act and 
unemployment compensation programs.
    Reed Act funds may not be used to pay for more land or building 
space than is needed for employment security purposes. However, funds 
may be used to purchase or construct a building large enough to provide 
space for future expansion that reasonably can be anticipated at the 
time of purchase or construction.
    b. Rental of Space. Extra space which is available through the 
purchase or construction of a building large enough for reasonable 
expansion purposes may be leased until the time it is required for 
agency use. Income from the lease may be deposited in the State's UTF 
account but may not be credited as Reed Act funds. Income from a lease 
may not be credited as Reed Act funds because only amounts transferred 
to the State's account under Section 903(a)(1), SSA, have ``Reed Act'' 
status. If the cost of the space is being amortized with grant funds, 
the income from the lease must be prorated between the State's UTF 
account and use to reduce the State's grant costs, in accordance with 
29 CFR 97.25, and the annual grant agreement.
    2. Disposition of Real Property and Subsequent Use of Proceeds. 
Real property acquired with Reed Act funds, which has not been 
amortized with grant funds (see part F.), may be sold or otherwise 
disposed of without obtaining DOL approval or disposition instructions. 
When unamortized real property is no longer needed for its originally 
authorized employment security purpose, States are expected to

[[Page 63965]]

use good business judgment in disposing of such property. Proceeds from 
such disposal must be returned to the State's UTF account. The proceeds 
will be credited as Reed Act funds up to the amount of the original 
expenditure, because only amounts transferred to the State's account 
under Section 903(a)(1), SSA, have Reed Act status.
    When real property acquired with Reed Act funds and wholly or 
partially amortized with grant funds is no longer needed for its 
originally authorized employment security purposes, it must be sold, 
exchanged for replacement property, or otherwise disposed of as 
directed by DOL disposition instructions (29 CFR Part 97.31(c)). 
Example A illustrates the sale of real property which was purchased 
with both non-Federal funds and Reed Act funds, with a portion of the 
Reed Act funds have been amortized with DOL grant funds.

    Example A: Thirty-five years ago, $1 million of Reed Act funds 
and $1 million of other non-Federal funds were used to acquire real 
property at the cost of $2 million for employment security purposes. 
Over the years, seventy percent (70%) of the Reed Act funds were 
amortized with DOL grant funds. Today, the real property is being 
sold for $6 million. The distribution of the respective equities is 
based on the following computations.

Share of Each Fund Source Based on Adjusted                             
 Contributions to Cost:                                                 
    Other Funds ($2,000,000 less $1,000,000)..   $1,000,000   =      50%
    DOL Grant Funds (70% x $1,000,000)........      700,000   =      35%
    Reed Act Funds ($1,000,000 less $700,000).      300,000   =      15%
                                                            ------------
        Total Cost............................    2,000,000         100%
                                                                        


Equity in Property by Fund Source:                                      
    Other Funds equity (50% x $6,000,000)...............      $3,000,000
    DOL equity (35% x $6,000,000).......................       2,100,000
    Reed Act equity (15% x $6,000,000)..................         900,000
                                                         ---------------
        Total Sale Proceeds.............................       6,000,000
                                                                        

(29 CFR 97.31(c)(2).)
    See Part F.1. for an explanation of how DOL (Federal) equity was 
created in the property.
    a. Replacement. A State may use proceeds from the sale of real 
property as an offset to the purchase price of a replacement property. 
In a replacement transaction, it is not necessary to make another 
appropriation of Reed Act funds to obtain the replacement property if 
the use of such funds conforms in all respects to the original 
appropriation authorizing the acquisition of the disposed property and 
is permissible under State law. In the interpretation of State Reed Act 
appropriations, the State is the final arbiter of its State law. Such 
transactions may not result in a new obligation of Reed Act funds. If 
the property being replaced is worth more than the replacement, the 
excess cash proceeds received or equivalent cash shall be handled as in 
Part 2.b.
    b. Use of Cash Proceeds. The Reed Act share of cash proceeds 
received from the sale or other disposition of real property must 
immediately be deposited in the State's account in the UTF (Section 
303(a)(4), SSA, and Section 3304(a)(3), FUTA). Similarly, any portion 
of the Reed Act proceeds from a disposition that is not used for 
replacement property must be immediately deposited in the State's UTF 
account. However, only proceeds equivalent to the original cost of the 
property may be credited to the State's account as Reed Act funds. 
Earnings or profit resulting from real estate transactions may not be 
credited as Reed Act funds because only amounts transferred to a State 
as provided in Section 903(a)(1), SSA, have ``Reed Act'' status. The 
remainder of cash proceeds, if any, must be used for the payment of 
unemployment benefits or other expenditures consistent with the 
withdrawal standard. Failure to immediately deposit the applicable 
proceeds into the UTF may be cause for the Secretary of Labor to 
commence conformity/compliance proceedings and to assess interest on 
the amount outstanding. Example B illustrates the proper distribution 
of the Reed Act share of sales proceeds in Example A.
    Example B: 

Distribution of Reed Act Share of Sales Proceeds:                       
    Reed Act contribution to acquisition cost...........      $1,000,000
    Less: Adjusted grant funds contribution to                          
     (amortization of) acquisition cost.................         700,000
                                                         ---------------
    Adjusted Reed Act Contribution......................         300,000
                                                         ===============
    Reed Act equity in sales proceeds...................         900,000
    Less: Adjusted Reed Act contribution (credited to                   
     UTF as Reed Act funds).............................         300,000
                                                         ---------------
    Balance of Reed Act equity (credited to UTF for                     
     payment of unemployment compensation and other                     
     expenditures consistent with the withdrawal                        
     standard)..........................................         600,000
                                                                        

H. Reimbursement of Reed Act Expenditures From Granted Funds

    1. Extent of Reimbursement. UI and ES grant funds may be used to 
reimburse the State's Reed Act expenditures to the extent that the 
costs meet the requirements for use of funds authorized by the Wagner-
Peyser Act and Title III. (29 CFR Part 97; OMB Circular No. A-87.) To 
date, reimbursement through amortization arrangements has been 
authorized for:
     the cost of obtaining land and constructing or purchasing 
a building for employment security purposes (real property),
     capital improvements to State-owned office buildings, to 
the extent such buildings are used for employment security purposes, 
and
     the acquisition of automatic data processing (ADP) 
installations.
    Reed Act funds expended for the above purposes may be amortized 
with grant funds because these expenditures meet the administrative 
requirements related to the use of grant funds at 29 CFR Part 97 and 
OMB Circular No. A-87 with respect to the expenditure of Wagner-Peyser 
Act and Title III funds.

[[Page 63966]]

    The amortization of Reed Act expenditures for the acquisition of 
real property and capital improvements with grant funds creates Federal 
equity. ``Federal equity'' means the Federal government owns a share of 
the fair market value of real property. Therefore, when the property 
ceases to be used for employment security purposes, DOL recaptures the 
Federal equity. The value of the Federal equity is based on the 
adjusted contribution of UI and ES grant funds to the acquisition cost 
of the property and any capital improvements that materially increase 
the value or useful life of real property.
    2. Deposit and ``Reappropriation'' of Reimbursed Reed Act Funds. 
Grant funds used to reimburse a State for Reed Act expenditures must be 
deposited immediately to the State's UTF account (Section 303(a)(4), 
SSA; Section 3304(a)(3), FUTA), and credited to Reed Act funds used in 
the project. Where a reimbursement relates to a particular project 
within an appropriation involving two or more years of Reed Act 
allocations, the reimbursement is applied first to the earliest Reed 
Act allocation used in the project and thereafter to the next earliest 
in consecutive order. Reimbursed funds may be ``reappropriated'' by the 
State legislature for other Reed Act administrative purposes.

I. Unemployment Trust Fund (UTF) Transactions

    1. Withdrawal of Reed Act Funds. U.S. Treasury requirements and 
procedures for withdrawal of Reed Act funds from a State's UTF account 
for payment of benefits and administrative expenses are the same as for 
regular benefit funds through Treasury's on-line requisition system. To 
withdraw Reed Act funds which have not been ``set aside'' in a Reed Act 
sub-account, the State must include the amount being withdrawn in the 
total requisition for regular benefits. There is a specific line on the 
electronic requisition screen for withdrawal of Reed Act funds which 
have been ``set aside'' in a Reed Act sub-account. The total amount of 
administrative Reed Act funds being withdrawn and the account and 
location of its deposit must be noted in the ``special instructions'' 
section of the screen.
    2. Deposit of Reed Act Fund Reimbursements. As noted in part F.2., 
grant funds used to reimburse Reed Act expenditures must be returned 
immediately to the State's UTF account. The following are procedures 
for deposit of such reimbursements:
     The State agency must prepare a voucher against the 
administrative fund account in the amount of the reimbursement to be 
made.
     The ``payee designation'' must be the State employment 
security agency, or whatever designation is appropriate to permit 
deposit to the clearing account.
     After deposit to the clearing account, the reimbursement 
must be included in the next transfer of funds from the clearing 
account to the State's UTF account.
    The same procedures for depositing reimbursement amounts will be 
used for returning any Reed Act funds which have been withdrawn for an 
administrative purpose but not used. (See part D.2.e.)

J. Accounting for Reed Act Funds

    1. Accounting Records. Each State agency will maintain an 
accounting system with respect to Reed Act funds which will provide 
information for required DOL reports. The accounting records will 
contain:
    a. Date and amount of each allocation or transfer of Reed Act funds 
to the State's UTF account, identified by fiscal year and totalled.
    b. Date and amount of each expenditure of Reed Act funds for 
benefits and the fiscal year in which the funds charged with such 
expenditure were transferred to the State's account.
    c. For each appropriation of Reed Act funds for costs of 
administration:
     Date of enactment of the appropriation law;
     Amount appropriated by the appropriation law;
     Date and amount of each obligation and expenditure of Reed 
Act funds with respect to each project authorized by the appropriation 
law and the Reed Act funds against which each obligation is charged;
     Date and amount of each withdrawal from the UTF account 
with respect to each project authorized by the appropriation law;
     Date and amount of each return (and credit) to the UTF 
account of withdrawals not expended;
     Date and amount of all receipts from the sale or other 
disposition of an employment security building financed with Reed Act 
funds or the lease of space therein;
     Date and amount of each reimbursement of Reed Act funds by 
way of amortization with grant funds with respect to each project 
authorized by the appropriation law; the crediting of each 
reimbursement to the UTF account, and the balance which remains to be 
reimbursed (or amortized); and
     Total of funds obligated pursuant to each appropriation, 
the total unobligated balance of each appropriation, and total charges 
against Reed Act funds.
    d. Control totals for each transaction recorded for each 
appropriation in c. above.
    e. Each entry in the records must be supported by appropriate 
documentation, and reference to such documentation must be made in the 
records.
    2. Approval of Vouchers.
    Each obligation and voucher for expenditure of Reed Act funds 
appropriated for expenses of employment security administration must be 
approved by the administrative head of the State agency or a duly 
authorized agent. All such documents or certified duplicates or copies 
thereof will be filed in the administrative office of the State agency.

K. Reed Act Funds Reporting Requirements

    All transactions involving Read Act funds must be reported on Form 
ETA 8403, Summary of Financial Transactions--Title IX Funds (``Reed 
Act'' Money) in accordance with instructions in ET Handbook No. 401, 
Section III, Chapter 2. Redeposits to and withdrawals from the UTF 
account are also reported on lines 14 and 41, respectively, of Form ETA 
2112, UI Financial Transaction Summary. Instructions for Form ETA 2112 
are contained in ET Handbook No. 401, Section II, Chapter 1.

L. OMB Approvals

    Reporting requirements for Form ETA 8403, Summary of Financial 
Transactions--Title IX Funds (``Reed Act'' Money) and Form ETA 2112, UI 
Financial Transaction Summary are approved by the Office of Management 
and Budget (OMB) under OMB Approval No. 1205-0154 (expiration date: 
February 28, 2000). OMB Approval is being sought for procedures to 
request restoration of Reed Act funds used for benefits (part C.5.b.) 
and procedures to establish and provide on-going maintenance to a Reed 
Act ``sub-account'' (part C.4.). When approval is received for these 
collections, notification will be issued.

    Note: States are not required to respond to these collections of 
information unless a currently valid OMB approval number is in 
effect.

Attachment II--Draft Language for State Laws

I. Draft Statutory Language

    The following language will allow States to use either of the Reed 
Act

[[Page 63967]]

appropriation alternatives provided after this draft statutory 
language.
    (f) Money credited under Section 903 of the Social Security Act.
    (1) Money credited to the account of this State in the Unemployment 
Trust Fund by the Secretary of the Treasury of the United States of 
America pursuant to Section 903 of the Social Security Act may not be 
requisitioned from this State's account or used except for the payment 
of benefits and for the payment of expenses incurred for the 
administration of this State's unemployment compensation law and public 
employment offices. Such money may be requisitioned pursuant to Section 
[insert section referring to withdrawals from the Unemployment Trust 
Fund] for the payment of benefits. Such money may also be requisitioned 
and used for the payment of expenses incurred for the administration of 
this State's unemployment compensation law and public employment 
offices but only pursuant to a specific appropriation by the 
legislature and only if the expenses are incurred and the money is 
requisitioned after the date of enactment of an appropriation law which 
specifies the purpose(s) for which such money is appropriated and the 
amount(s) appropriated therefor. Such appropriation is subject to the 
following conditions:
    (A) The period within which such money may be obligated is limited 
to a period ending not more than two years after the date of the 
enactment of the appropriation law; and
    (B) the amount which may be obligated is limited to an amount which 
does not exceed the amount by which (i) the aggregate of the amounts 
transferred to the account of this State pursuant to Section 903 of the 
Social Security Act exceeds, (ii) the aggregate of the amounts used by 
this State pursuant to this Act and charged against the amounts 
transferred to the account of this State.
    (2) For purposes of subsection (1)(B), the amounts obligated under 
an appropriation for the above-described administrative purposes shall 
be charged against transferred amounts at the exact time the obligation 
is entered into.
    (3) The appropriation, obligation, and expenditure or other 
disposition of money appropriated under this subsection shall be 
accounted for in accordance with standards established by the United 
States Secretary of Labor.
    (4) Money appropriated as provided herein for the payment of 
expenses of administration shall be requisitioned as needed for the 
payment of obligations incurred under such appropriation and, upon 
requisition, shall be deposited in the employment security 
administration fund from which such payments shall be made. Money so 
deposited shall, until expended, remain a part of the unemployment fund 
and, if it will not be immediately expended, shall be returned promptly 
to the account of this State in the Unemployment Trust Fund.
    (5) Notwithstanding paragraph (1), moneys credited with respect to 
Federal fiscal years 1999, 2000, and 2001, shall be used soley for the 
administration of the UC program and are not subject to appropriation 
by the legislature.

II. Draft Appropriation Language

    Two suggested Reed Act appropriation bills are presented. Either 
bill may be used with the draft statutory language presented earlier. 
The first permits States with statutory Reed Act provisions to 
incorporate the requirements of Section 903(c)(2), SSA, by simply 
referencing these statutory provisions. This approach may be better for 
States where the Reed Act appropriation may be contained in a larger 
appropriation act or where State appropriation law limits the content 
of any single appropriation bill. The second details the requirements 
of Section 903(c)(2) and is similar to Reed Act appropriation bills 
recommended by this Department in the past. Since Reed Act moneys 
transferred with respect to Federal fiscal years 1999, 2000, and 2001, 
need not be appropriated by the State legislature, States need not 
follow this draft language for such moneys.

Alternative 1

    AN ACT APPROPRIATING MONEY FOR ERECTING A BUILDING FOR USE BY [Name 
of State employment security agency]
    BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF [Name of State]
    SEC. 1. There is hereby appropriated out of funds made available to 
this State under Section 903 of the Social Security Act, as amended, 
the sum of $________, or so much thereof as may be necessary, to be 
used, under the direction of the [name of State employment security 
agency or the agency responsible for building construction] and subject 
to the requirements of Section [reference section of State code 
containing Reed Act provisions] of the State Code, for the purpose of 
acquiring land and erecting a building thereon for the use of [name of 
State employment security agency] and for such improvements, 
facilities, paving, landscaping, and fixed equipment\1\ as may be 
required for its proper use and for operation by the [name of State 
employment security agency].
---------------------------------------------------------------------------

    \1\ ``Fixed equipment'' refers to such things as a central 
heating and/or air conditioning plant which becomes an integral part 
of the building and may be included in the cost of the building 
reimbursable out of granted funds.
---------------------------------------------------------------------------

    SEC. 2. Section 1 shall take effect and be in force from and after 
passage.

Alternative 2

    AN ACT APPROPRIATING MONEY FOR ERECTING A BUILDING FOR USE BY [Name 
of State employment security agency]
    BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF [Name of State]
    SEC. 1. There is hereby appropriated out of funds made available to 
this State under Section 903 of the Social Security Act, as amended, 
the sum of $________, or so much thereof as may be necessary, to be 
used, under the direction of the [name of State employment security 
agency or the agency responsible for building construction], for the 
purpose of acquiring land and erecting a building thereon for the 
administration of this State's unemployment compensation law and public 
employment offices and for such improvement, facilities, paving, 
landscaping, and fixed equipment \2\ as may be required for its proper 
use and operation.
---------------------------------------------------------------------------

    \2\ See footnote \1\ above.
---------------------------------------------------------------------------

    SEC. 2. No part of the money hereby appropriated may be obligated 
after the expiration of the 2-year period beginning on the date of the 
enactment \3\ of this act.
---------------------------------------------------------------------------

    \3\ The Department of Labor recommends that the phrase ``date of 
enactment'' be used here, since Section 903(c)(2)(B) of the Social 
Security Act requires that use of the appropriated money be limited 
to a 2-year period beginning with such date.
---------------------------------------------------------------------------

    SEC. 3. The amount obligated \4\ pursuant to this act shall not 
exceed at any time the amount by which (a) the aggregate of the amounts 
transferred to the account of this State pursuant to Section 903 of the 
Social Security Act exceeds (b) the aggregate of the amounts obligated 
for administration and paid out for benefits and required by law to be 
charged against the amounts transferred to the account of this State.
---------------------------------------------------------------------------

    \4\ Section 903(c)(2)(D) requires that this limitation be 
applied to money obligated, even though a State may choose to apply 
the 2-year limitation to expenditures.
---------------------------------------------------------------------------

    SEC. 4. This Act shall take effect and be in force from and after 
passage.

[FR Doc. 97-31669 Filed 12-2-97; 8:45 am]
BILLING CODE 4510-30-M