The American Recovery and Reinvestment Act: The Role of Workforce Programs

8 Unemployment Insurance

191 8 Unemployment Insurance Yvette Chocolaad NASWA Wayne Vroman Urban Institute Richard A. Hobbie NASWA BACKGROUND ON THE UNEMPLOYMENT INSURANCE (UI) SYSTEM From its beginning, the Unemployment Insurance (UI) system has served two purposes—1) economic stabilization and 2) temporary and partial wage replacement for most workers who have lost their jobs. During recessions, policymakers historically have relied on expansions to unemployment insurance benefits to assist not only individuals but also the economy more broadly, since benefit expansions help sustain purchasing power and thereby minimize the depth and duration of recessions (Blaustein 1993). The UI system is a unique federal-state partnership, grounded in federal law but administered through state law by state officials. Created by the Social Security Act of 1935, it has been a successful social insurance program for many years. The system is decentralized at the state level to address the varying economic conditions among the states. State unemployment benefits are financed through state payroll taxes, which are held in individual state trust fund accounts in the federal Unemployment Trust Fund in the U.S. Treasury. State UI agencies are responsible for both the tax and benefit functions necessary to administer their UI programs. 192 Chocolaad, Vroman, and Hobbie Administering unemployment benefits involves four core business processes, which are displayed in Figure 8.1: 1) intake, 2) adjudication , 3) continuing claims, and 4) appeals. These are complicated and time-consuming tasks, each involving numerous subprocesses, which have been made harder by a record number of claimants during and after the “Great Recession.” Taking and responding to initial claims for UI benefits (intake) involves not only making a determination of eligibility but also detecting issues and referring cases for adjudication, tracking claims, communicating with claimants, and connecting some or all claimants to workforce services designed to speed reemployment. Adjudication involves assigning cases to staff, processing information from employers, conducting fact-finding, and making eligibility determinations. For continuing claims, states must determine continued weekly eligibility, detect issues and refer cases for adjudication, process claims, and connect some or all claimants to workforce services designed to speed reemployment. Claimants or employers may file appeals regarding a state’s determination of an individual’s eligibility for benefits. Nearly all states have both lower and higher authority appeals processes, which involve subprocesses related to recording the appeals, assigning cases, conducting discovery, providing notices of hearings, conducting hearings, implementing decisions, and possibly preparing for appeals of final agency orders through the court system. THE UI PROVISIONS OF THE AMERICAN RECOVERY AND REINVESTMENT ACT The Recovery Act’s main objective was to provide economic stimulus that would “save and create jobs immediately” (whitehouse.gov 2009). Other objectives were to provide aid to individuals affected by the recession and to invest in improving schools, updating infrastructure , modernizing health care, and promoting clean energy. At the time of passage in February 2009, the cost of the economic stimulus package , which included both spending and revenue provisions, was estimated by the Congressional Budget Office (CBO) to be $787 billion over the 10-year period from 2009 through 2019. By February 2012, the CBO had revised the estimate to $831 billion and reported that “close 193 Figure 8.1 Core Business Processes for UI Benefits Administration SOURCE: NASWA, UI Performance and Accountability Project for the U.S. Department of Labor, March 2011. 194 Chocolaad, Vroman, and Hobbie to half of that impact occurred in Fiscal Year 2010, and more than 90 percent . . . was realized by the end of December 2011” (CBO 2012). The unemployment insurance provisions of the Recovery Act included both tax and spending provisions. Major provisions included a $500 million supplemental distribution to states for UI administration, a provision temporarily waiving interest on federal loans to state UI trust funds, funding to encourage state UI program “modernization,” UI benefit extensions, a temporary $25 weekly UI benefit enhancement, and a provision temporarily suspending federal income tax on a portion of UI benefits. As Table 8.1 shows, the CBO estimated that these provisions would result in federal outlays totaling approximately $45 billion over 10 years, with almost all the funds projected to be spent quickly—in fiscal years 2009 and 2010. However, the estimates were made in the early months of 2009, well before the depth and duration of the Great Recession were widely understood, and they substantially underestimated actual costs. The estimates also do not include subsequent extensions related to the Great Recession. Estimates...