[Federal Register Volume 67, Number 94 (Wednesday, May 15, 2002)]
[Notices]
[Pages 34730-34733]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-12153]


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DEPARTMENT OF LABOR

Employment and Training Administration


Workforce Security Programs: Training and Employment Guidance 
Letter Interpreting Federal Law

    The Employment and Training Administration interprets federal law 
requirements pertaining to unemployment compensation (UC) and public 
employment services (ES). These interpretations are issued in Training 
and Employment Guidance Letters (TEGLs) to the State Workforce 
Agencies. The TEGL described below is published in the Federal Register 
in order to inform the public.

TEGL 18-01

    TEGL 18-01 advises states of the federal law requirements 
applicable to the $8 billion Reed Act distribution made on March 13, 
2002.
    Like other Reed Act distributions, federal law governs how states 
may use this money. This $8 billion Reed Act distribution is available 
for the payment of UC and the administration of the state's UC law and 
its ES offices.
    While the use of the $8 billion distribution is limited by many of 
the same requirements that apply to other Reed Act distributions, there 
are also differences. Using a question and answer format, Attachment I 
to TEGL 18-01 explains these differences and other amendments to 
federal law relating to the Reed Act, and answers questions that have 
been raised by the states concerning the distribution.

    Dated: May 10, 2002.
Emily Stover DeRocco,
Assistant Secretary of Labor.

Employment and Training Administration, Advisory System, U.S. 
Department of Labor, Washington, DC 20210

CLASSIFICATION: Reed Act
CORRESPONDENCE SYMBOL: OWS/OIS/DL
DATE: April 22, 2002

Training and Employment Guidance Letter No. 18-01

To: All State Workforce Liaisons; All State Workforce Agencies; All 
State Worker Adjustment Liaisons; All One-Stop Center System Leads.
From: Emily Stover DeRocco, Assistant Secretary.
Subject: Reed Act Distribution.

    1. Purpose. To advise states of the federal law requirements 
applicable to the $8 billion Reed Act distribution made on March 13, 
2002.
    2. References. Section 209 of the Temporary Extended Unemployment 
Compensation Act of 2002 (TEUCA), which is Title II of the Job Creation 
and Worker Assistance Act of 2002, Public Law No. 107-147, signed by 
the President on March 9, 2002; Title IX of the Social Security Act 
(SSA); the Federal Unemployment Tax Act (FUTA); and Unemployment 
Insurance Program Letter (UIPL) 39-97 (62 FR 63960 (December 3, 1997)), 
UIPL 39-97, Change 1 (January 16, 2002) and UIPL 20-02 (April 4, 2002).
    3. Background. On March 13, 2002, an $8 billion distribution was 
made to the states' accounts in the Unemployment Trust Fund. The TEUCA 
labeled this transfer a ``Reed Act'' distribution although it differs 
from traditional Reed Act distributions, most notably because it was a 
set dollar amount, made without regard to the statutory ceilings in the 
federal accounts. Each state was advised of its share of this 
distribution in UIPL 20-02.
    Like other Reed Act distributions, federal law governs how states 
may use this money. This $8 billion Reed Act distribution is available 
for the payment of unemployment compensation (UC) and the 
administration of the state's UC law and its public employment service 
(ES) offices.

RESCISSIONS: None.
EXPIRATION DATE: Continuing

    While the use of this $8 billion distribution is limited by many of 
the same requirements that apply to other Reed Act distributions, there 
are also differences. Using a question and answer format, Attachment I 
explains these differences and other amendments to federal law relating 
to the Reed Act, and answers questions that have arisen since the TEUCA 
became law. A separate advisory which discusses suggested uses for the 
$8 billion Reed Act distribution is under development.
    4. Action. State administrators should distribute this advisory to 
appropriate staff. States must adhere to the requirements of federal 
law that are contained in this advisory.
    5. Inquiries. Questions should be addressed to your Regional 
Office.
    6. Attachments.

I. Reed Act Distributions Under the Temporary Extended Unemployment

[[Page 34731]]

Compensation Act of 2002--Questions and Answers
II. Text of Section 209 of the Temporary Extended Unemployment 
Compensation Act of 2002 \1\
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    \1\ ATTACHMENT II is available in the 
www.workforcesecurity.doleta.gov Web site under Directives/
Advisories.
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Attachment I

Reed Act Distributions Under the Temporary Extended Unemployment 
Compensation Act of 2002 - Questions and Answers

In General

    1. Question: How was my state's share of the total amount of the $8 
billion Reed Act distribution determined?
    Answer: In general, each state's share is based on its 
proportionate share of FUTA taxable wages for calendar year 2000. The 
specific formula is as follows:
     First, the amount of Reed Act moneys that would have been 
distributed in October 2001, had the distribution not been capped at 
$100 million, was determined. This amount was about $9.34 billion. 
(Section 903(d)(2)(A)(i), SSA, as added by the TEUCA.)
     Second, each state's share of the $9.34 billion was 
determined based on the state's proportionate share of FUTA taxable 
wages in calendar year 2000. (Section 903(d)(2)(A), SSA, as added by 
the TEUC, and Section 903(a)(2), SSA.)
     Third, each state's share of the $100 million actually 
distributed in October 2001 was deducted. This resulted in a figure of 
about $9.24 billion. (Section 903(d)(2)(A)(ii), SSA, as added by the 
TEUCA.)
     Fourth, the $8 billion cap was applied. (Section 
903(d)(2)(B)(i), SSA, as added by the TEUCA.) According to Section 
903(d)(2)(B)(ii), SSA, as added by the TEUCA, this reduction is applied 
``ratably.'' This means that each state's share of the $9.24 billion 
was reduced proportionately to result in the $8 billion distribution.
    2. Question: My state has borrowed under Title XII, SSA, so that it 
can continue to pay benefits. Does this affect my Reed Act 
distribution?
    Answer: Yes. The amendments state that the existing provisions 
applying to any outstanding advances shall apply. Specifically, Section 
209(c), TEUCA, provides that Section 903(b), SSA, ``shall apply to'' 
the $8 billion Reed Act transfer. Section 903(b)(2), SSA, provides that 
the Reed Act distribution for a state will be reduced ``by the balance 
of advances made to the State under section 1201, SSA'' for purposes of 
reducing the outstanding loan. The upshot is that the state with an 
outstanding loan receives its full share of the distribution in terms 
of dollars; however, the amount distributed as Reed Act moneys is 
reduced or eliminated depending on whether the outstanding advance 
exceeds the state's share of Reed Act funds.
    3. Question: For what may the $8 billion distribution be used?
    Answer: As is the case with regular Reed Act distributions, the 
amounts are limited to the payment of UC and the administration of the 
state's UC law and its system of public employment offices. More 
specific information is provided in the Questions and Answers under 
``Use for Benefits'' and ``Use for UC and ES Administration.'' Details 
about requirements related to use of these funds are provided in a 
series of Questions and Answers below.
    4. Question: If the $8 billion transfer is limited to the payment 
of certain administrative costs and the payment of UC, does this mean 
it may not be used to reduce employer taxes?
    Answer: No. The use limitations apply only to expenditures. A 
state's share of the Reed Act distribution may increase the balance in 
the state's unemployment fund, and, as a result, lower employer taxes. 
Employer rates must, however, continue to be assigned on the basis of 
an employer's experience as provided under Section 3303(a)(1), FUTA.

Use for Benefits

    5. Question: Is the use for benefits of the $8 billion distribution 
in any way restricted? For example, is it restricted to the payment of 
part-time workers or payments based on alternative base periods?
    Answer: There are some restrictions. In general, the distribution 
may be used for the payment of regular compensation, including 
increased weekly benefit amounts, and certain payments of additional 
compensation, but not for the state's share of extended benefits (EB). 
More specifically, the distribution may be used for any of the 
following benefit purposes for weeks of unemployment beginning after 
March 9, 2002:
     The distribution may be used for the payment of ``regular 
compensation.'' (Section 903(d)(3)(B)(i)(I), SSA, as added by the 
TEUCA.) Thus, any amount of regular UC payable under the state's UC law 
is permissible.
     ``At the option of the State,'' the regular compensation 
``may include amounts which shall be payable to 1 or more categories of 
individuals not otherwise eligible for regular compensation,'' 
including part-time workers and those individuals who would qualify 
under an alternative base period. (Section 903(d)(3)(C), SSA, as added 
by the TEUCA.) Since this provision simply lists options, it is not 
exhaustive. However, if a state amends its law to pay any of these 
additional categories, the UC paid to such individuals ``may not, for 
any period of unemployment, exceed the maximum amount of regular 
compensation authorized'' under the state's UC law for the same period. 
Thus, if the state elects to pay these special categories out of this 
$8 billion Reed Act distribution, the benefit entitlement is limited to 
that applicable to other workers. For example, a worker using an 
alternative base period under this provision is limited to using it for 
purposes of qualifying for the same weekly and maximum benefit amounts 
as other workers.
     The distribution may be used for the payment of 
``additional compensation,'' but only upon the exhaustion of TEUC for 
individuals who would be ``eligible for regular compensation,'' but for 
the fact that they had exhausted entitlement to that regular 
compensation. (Section 903(d)(3)(B)(i)(II), SSA, as amended by the 
TEUCA.) ``Additional compensation'' is defined as ``compensation 
payable to exhaustees by reason of conditions of high unemployment or 
by reason of other special factors.'' (Section 205(d) of the Federal-
State Extended Unemployment Compensation Act of 1970, as amended.)
     The distribution may not be used for the state share of EB 
under the Federal-State Extended Unemployment Compensation Act of 1970. 
The distribution may only be used for payment of regular and additional 
compensation as described above.
    Note that, if a payment is not allowed under the Reed Act 
requirements, the state may instead pay the amount from other moneys in 
its unemployment fund as long as the payment meets the definition of 
``compensation,'' that is, cash benefits payable to individuals with 
respect to their unemployment. (Section 3306(h), FUTA.)
    6. Question: There are workers in my state who exhausted regular 
compensation, but who are not eligible for TEUC. May I pay additional 
compensation to these workers from this Reed Act distribution? Does 
this additional compensation fall under the ``categories of individuals 
not otherwise eligible for regular compensation?'
    Answer: The answer to both questions is ``no.'' Since the use of 
the Reed Act moneys for additional compensation is explicitly 
restricted to TEUC

[[Page 34732]]

exhaustees, additional compensation does not fall under the 
``categories of individuals not otherwise eligible for regular 
compensation.'' Since the examples of these categories pertain only to 
payments of regular compensation, they do not authorize the payment of 
additional compensation to individuals ineligible for TEUC. (Section 
903(d)(3)(C)(iii), SSA, as amended by the TEUCA.)
    7. Question: May my state use the $8 billion Reed Act distribution 
to pay for weeks of unemployment occurring prior to the date of 
enactment (March 9, 2002)?
    Answer: No. The law explicitly limits payments to ``weeks of 
unemployment beginning after the date of enactment.'' (Section 
903(d)(3)(D), SSA, as amended by the TEUCA.)
    8. Question: Do the amendments change the treatment of EB due to 
the receipt of additional benefits?
    Answer: Yes. Under current EB law, any additional compensation 
received by an individual causes a reduction in the amount of EB 
payable. (Section 202(b)(1) of the Federal-State Extended Unemployment 
Compensation Act of 1970.) However, the amendments supersede this 
requirement. Additional compensation paid from the $8 billion Reed Act 
distribution, which is paid ``upon the exhaustion'' of TEUC, does not 
reduce EB entitlement by the amount of additional benefits paid. 
(Section 903(d)(3)(B)(ii), SSA, as added by the TEUCA.) The additional 
compensation to which this provision applies need not be created 
following the Reed Act distribution; it may be a longstanding state 
program. Instead, the key is whether the state uses the $8 billion 
distribution to finance these benefits. Once there are no longer TEUC 
exhaustees in the claimant population, this exception will have no 
effect.

Use for UC and ES Administration

    9. Question: If my state wants to use the $8 billion Reed Act 
distribution for administrative purposes, must my state's legislature 
first appropriate the money?
    Answer: Yes. The appropriation is explicitly required. 
(Specifically, Section 903(d)(4), SSA, as added by the TEUCA, says the 
distribution may be used for administrative purposes ``subject to'' the 
appropriation requirements of Section 903(c)(2), SSA.) However, the 
amendments also provide that one of the existing state appropriation 
requirements does not apply. State appropriations are not required to 
specify that moneys appropriated must be obligated within the two-year 
period beginning on the date of enactment of the state's appropriation 
law. States are free to obligate moneys beyond this two-year date. 
(State law may, however, restrict the obligation period to two years or 
less.)
    10. Question: Prior to the enactment of the TEUCA, my state enacted 
an appropriation allowing Reed Act moneys distributed in fiscal year 
2002 to be used for UC administrative purposes. Does this appropriation 
allow my state to use some/all of its share of the $8 billion Reed Act 
distribution for UC administration?
    Answer: The Department has previously permitted Reed Act moneys to 
be appropriated in advance of their availability. Therefore, it is 
possible that an existing state appropriation of fiscal year 2002 Reed 
Act moneys permits the expenditure for UC administration of the state's 
share of the $8 billion Reed Act distribution. The state will need to 
examine its Reed Act appropriation law to determine if it is 
sufficiently broad to permit expenditure of amounts transferred to it 
under Section 903(d), SSA. Also, the state will need to determine if 
its general appropriation laws permit this.
    11. Question: How long is the $8 billion Reed Act distribution 
available for administrative purposes?
    Answer: There is no time limit on the use of this distribution (or 
any other Reed Act distribution) for administrative purposes.
    12. Question: May the $8 billion Reed Act distribution be used for 
the administration of my state's One-Stop system?
    Answer: Yes. Reed Act moneys may be used for the ``administration 
of * * * public employment offices.'' (Section 903(c)(2), SSA.) The 
Department has in the past taken the position that ``administration of 
* * * public employment offices'' means any function fundable under the 
Wagner-Peyser Act. As a result, Reed Act funds may be used in the same 
manner that Wagner-Peyser Act funds are used to support One-Stop 
systems. Examples of activities that support administration and service 
delivery of employment and workforce information services in One-Stop 
offices include:
     Staff for delivery of appropriate core and intensive 
service employment services;
     Equipment and resources for resource rooms;
     Payment for rent, utilities, and maintenance of 
facilities, including common spaces such as resource rooms, reception 
areas, conference areas, etc. in accordance with cost sharing 
guidelines;
     Shared costs for operation of local one-stops including 
payment for one-stop operators in accordance with cost sharing 
guidelines;
     Development of products that support service delivery such 
as labor market information products and job bank technology;
     Computer equipment, network equipment, telecommunications 
equipment, application development, and other technology resources, 
including assisted technology, that support employment and workforce 
information service delivery;
     Outreach and educational materials targeted at users of 
one-stop employment and workforce information services;
     Training, technical assistance, and professional 
development of staff who deliver employment and workforce information 
services.
    This list is not exhaustive, but only intended to provide examples 
of activities in the One-Stop system for which Reed Act funds may be 
used. Guidelines on permissible uses of Wagner-Peyser funds are found 
in 20 CFR parts 652 and 667. In addition, the Department plans to post 
guidance entitled One-Stop Comprehensive Financial Management Technical 
Assistance Guide on Employment and Training Administration Web sites in 
the near future.
    13. Question: May the $8 billion Reed Act distribution be used to 
pay the costs of job training?
    Answer: No. Except for training provided to UC and ES staff, Reed 
Act moneys may not be used to provide occupational skill training 
because this training is not a cost of administering either the state's 
UC law or its public employment offices. Just as with Wagner-Peyser 
funds, the Reed Act moneys may, however, be used for activities that 
are presented in a training format or a group setting but generally 
fall within the category of job search and placement services (e.g., 
teaching individuals how to interview for a job or how to complete a 
resume).
    14. Question: My state is using its share of the $8 billion Reed 
Act distribution to pay the benefits costs associated with the 
enactment of an alternative base period (or other expansion). How will 
my state's implementation costs be paid?
    Answer: A state may use its UC grant to pay for these 
implementation costs. Alternatively, since Reed Act moneys may be used 
for administration of the state's UC law, the state may appropriate 
Reed Act moneys to pay for costs of implementation.

[[Page 34733]]

    15. Question: Will my state be able to use UC and ES administrative 
grants to amortize Reed Act purchases made with my state's share of the 
$8 billion distribution?
    Answer: Yes. Amortization relates to the permissible use of UC and 
ES administrative grants; this area is not addressed by the TEUCA. See 
UIPLs 39-97 and UIPL 39-97, Change 1, for guidance on when amortization 
is permissible.
    16. Question: Is OMB Circular A-87, Cost Principles for State, 
Local and Indian Tribal Governments, applicable to the $8 billion 
distribution or any other Reed Act distribution?
    Answer: No. OMB Circular A-87 applies only to federal grants and 
cooperative agreements and Reed Act funds are neither. Use of Reed Act 
funds for administrative activities is governed by Section 903(c)(2), 
SSA, which limits use to administration of the state's UC law and/or 
public employment offices under the conditions specified in that 
section. However, since Reed Act moneys may not pay costs for non-UI/
non-ES programs, in cases where an activity (such as purchasing a 
multi-agency computer) benefits other activities, it will still be 
necessary to ensure that non-UI/non-ES costs are not paid from Reed Act 
funds. In these cases, states must allocate costs. Although states will 
not be required to submit cost allocation plans in such cases, in the 
event any plan is reviewed by the Department, cost allocation 
requirements applicable to grants will be applied to the plan.
    17. Question: May I withdraw some or all of the $8 billion Reed Act 
distribution and use it to set up an administrative fund at the state 
level that would earn interest that could be used for administrative 
expenses?
    Answer: No. Withdrawing amounts to create an investment fund at the 
state level is inconsistent with the limitations on the use of Reed Act 
moneys. That is, the Reed Act moneys would not be used for the payment 
of compensation or the administration of the state's UC law or system 
of public employment offices. Instead, the money would be withdrawn for 
purposes of investment. See page 12 of Attachment I to UIPL 39-97.
    18. Question: If my state uses the $8 billion Reed Act distribution 
to pay for benefits, may the amounts so used be restored so that the 
state can use them for administrative payments?
    Answer: No. The restoration provisions of the SSA are limited to 
``amounts transferred to the account of a State pursuant to subsections 
(a) and (b)'' of Section 903, SSA. (Emphasis added; Section 
903(c)(3)(A)(i), SSA.) The $8 billion Reed Act distribution was not 
transferred to states under these two subsections; instead it was 
transferred under subsection (d) of Section 903, as added by the TEUCA.
    19. Question: May the interest earned on the Reed Act balances be 
used for UC and ES administration?
    Answer: No. The amount of any Reed Act distribution is limited to 
the actual dollar amount transferred to the states. Therefore, interest 
earnings are not available for administrative purposes.

$100 Million Distributions Made in 1999-2001

    20. Question: Do the amendments affect the use of the capped $100 
million Reed Act distributions that were made in October of 1999, 2000, 
and 2001?
    Answer: No. Although the TEUCA amendments repealed those provisions 
of Section 903, SSA, addressing these capped distributions, it also 
contained a savings clause providing that ``[a]ny amounts transferred 
before the date of enactment of this Act * * * shall remain subject to 
section 903 of the Social Security Act, as last in effect before such 
date of enactment.'' (Section 209(a)(2), TEUCA.) Since all these capped 
distributions were transferred prior to the TEUCA's enactment, their 
use continues to be restricted to UC administration, and no 
appropriation by the state legislature is required. Although there is 
some indication in the legislative history that Congress intended to 
repeal this use limitation and reimpose the appropriation requirement, 
the plain language of the law produces the opposite result.

State Reed Act Laws

    21. Question: Is the Department providing draft appropriation 
language?
    Answer: Two alternative versions of draft language were provided in 
Attachment II of UIPL 39-97. Both of these may be used without change, 
except as noted in the following paragraph. Also, Alternative II may be 
modified to delete the provision required by Section 2 of that 
alternative, which pertains to the 2-year limitation on obligations 
since, as explained above, the 2-year limitation does not apply to the 
$8 billion distribution.
    Care should be taken in crafting state appropriation bills to 
assure the source of the Reed Act moneys is clear. There should be no 
doubt about whether the moneys used derive from traditional Reed Act 
distributions (those made in the 1950's and in October of 1998); the 
$100 million distributions made in October of 1999, 2000, and 2001; and 
the $8 billion Reed Act distribution. The state may indicate that it is 
using its share of the $8 billion by specifically referencing Section 
903(d), SSA, in the appropriation bill or referencing the specific date 
on which the transfer was made to the state (March 13, 2002). Without 
this information, the Department will be unable to determine if the 
appropriation is consistent with the applicable use requirements.
    22. Question: Will the states need to change their permanent Reed 
Act provisions?
    Answer: This will need to be determined by each state. Some states 
may restrict the use of Reed Act funds for administration purposes to 
amounts transferred under Section 903(c), SSA. Since the $8 billion 
transfer was made under Section 903(d), SSA, states may need to make 
this change. The Department is evaluating whether draft language should 
be provided in this area.

Reporting Requirements

    23. Question: What are the reporting instructions for the Reed Act 
money?
    Answer: States are required to report all Reed Act transactions on 
the ETA 8403. The report is required each month a transaction occurs 
(e.g., deposits to the state account, withdrawals from the account, 
enactment of state appropriations). These reports are not required if 
there is no Reed Act activity. See ETA Handbook 401. The Department 
expects to have these transactions reported on-line through the 
Treasury's Automated Standard Application for Payments (ASAP) soon, and 
states will receive additional instructions at that time.
    Reed Act reporting instructions for the ETA 2112 are unchanged. 
(See ETA Handbook 401, 3rd Edition, May 2000.)

[FR Doc. 02-12153 Filed 5-14-02; 8:45 am]
BILLING CODE 4510-30-P